Did you know? Lower insured mortgage rates rely on a federal MBS fee break for lenders — which has a limit.
If a lender reaches its Mortgage-Backed Securities limit, your insured mortgage rate offer can float higher. Here's how it works, and how you can avoid the extra cost, especially at renewal.
A Canadian mortgage lender can't technically run out of funds. But it can reach its federally allocated $9B limit for lower-cost Mortgage-Backed Securities (MBS).
When that lower-fee limit is reached, insured mortgage rates can increase. It's a mortgage insider fact most homeowners aren't aware of, yet it can affect your mortgage budget and plans.
Think of insured MBS pricing like a large container slowly filling with water. Lenders pay lower fees up to a set level. Once that level is reached, costs rise. Insured lending continues, but as it becomes more expensive, it can show up in a higher-than-expected interest rate offer when you buy or renew with an insured mortgage.
Here's how the MBS limit works and what you can do to avoid the higher monthly mortgage payment.
Key Takeaways:
In Canada, Mortgage-Backed Securities are the main way Canadian lenders fund insured mortgages at lower interest rates.
MBS are bundles of insured mortgages that lenders pool together and sell to investors. These securities are backed by a federal guarantee, meaning that investors continue to get their returns even if a borrower defaults (an attractive investor benefit).
The program operates under the National Housing Act, with the Canada Mortgage and Housing Corporation overseeing the issuance and management of MBS in partnership with lenders, charging fees for this servicing.
Lenders use the capital raised through MBS investments (see the full investment cycle below) to fund insured mortgages.
This limit puts all lenders, such as the Big Six banks, non-bank lenders, and credit unions, on equal ground for offering you insured mortgages at lower rates.
An insured mortgage is a high-ratio loan — meaning the down payment is less than 20% — and it requires default insurance to protect the lender. It's typically paid by the borrower as a one-time premium added to the mortgage balance.
An insurable mortgage is one backed by bulk default insurance purchased by the lender, which also allows the lender to offer borrowers lower interest rates.
From a lender funding perspective, insured and insurable mortgages are treated the same for the MBS limit.
The MBS program and the $9B lower-fee allocation limit are essential mortgage funding mechanisms that help keep your insured (and insurable) mortgage rate lower.
Here are some of the ways a Canadian homebuyer or owner can benefit from the MBS insured-mortgage program:
Non-bank lenders (such as our in-house THINK Financial) don't take client deposits like the big banks. The MBS program, in particular, enables non-bank lenders to originate insured mortgages at competitive rates without relying on deposits for capital.
For lenders that do accept client deposits, the MBS program helps reduce insured mortgage costs, assuming the lender doesn't exceed the annual limit.
Your mortgage itself isn't in jeopardy. But if a lender exceeds the MBS annual limit, your insured mortgage costs could increase when you go to buy a home or renew your mortgage.
Many homeowners are familiar with CMHC as a default insurance provider. Two private Canadian companies, Sagen and Canada Guaranty, also insure mortgages.
Regardless of which provider insures a borrower's high-ratio mortgage, only CMHC administers the lender Mortgage-Backed Securities (MBS) program for all insured mortgages.
Here’s the step-by-step process lenders use to fund insured mortgages through the MBS framework:
Each mortgage lender can issue up to $9B in MBS per year at lower CMHC guarantee fees.
If a lender exceeds that limit, CMHC's guarantee fees on insured mortgages can increase from the lower fee of 0.50% to 1.4% (for a 5-year term mortgage pool), significantly raising their costs to fund these mortgages.
Here’s what that means:
It’s a 'use it or lose it' program — low-fee MBS allocations don’t carry over to the next year.
Let’s say a lender securitizes a $100 million insured mortgage pool for a 5-year term. Under the $9B annual limit, a lower guarantee fee of 0.50% is charged, for a one-time cost to the lender of $500K.
Over the $9B limit incurs a higher guarantee fee of 1.4%, costing the lender $1.4M. That’s a $900K cost increase per $100M pool.
Now, imagine the lender issues multiple $100M pools after breaching the annual cap — the fee jump for the lender adds up quickly.
Let’s say each insured mortgage in that pool is $400K.
Based on the above example, the additional $3,600 lender cost can translate to approximately 0.25% added to your purchase or renewal mortgage rate.
Here's how a 0.25% rate increase impacts your mortgage payments:
CMHC allocates insured-mortgage MBS guarantees to a wide range of approved Canadian financial institutions, which fall into the following main categories:
Big banks are, well, very big — and quickly use up their MBS limit for insured mortgages, resulting in slightly higher operational costs of accessing their range of client deposits and financial products to fund insured mortgages.
Larger MFCs (non-bank lenders) may quickly reach their allocated limit, while smaller ones typically do not. Non-bank lenders are the most sensitive to allocation limits because MBS are their primary mechanism for funding insured mortgage lending.
The other institutions mentioned above are less likely to exceed their $9B MBS limit.
Yes, but the American MBS (mortgage-backed securities) market that sparked the crisis was substantially different from Canada’s insured MBS program.
Most of the U.S. MBS involved in the 2008 global financial rout weren’t guaranteed investments — they were backed by high-risk subprime mortgage loans.
If your insured mortgage is renewing in 2026 or 2027, lender MBS capacity may directly affect your rate.
The larger MFCs, such as First National, MCAP, and CMLS, are more susceptible to hitting their MBS limit, as their primary business involves servicing a large number of insured mortgages. Many Canadians appreciate these non-bank lenders for their personalized mortgage services and access to often better rates and features than one-size-fits-all big-bank mortgages.
A wave of insured renewals coming at the larger MFCs over the next couple of years may leave little room within the $9B MBS limit to accommodate the surge.
As a home buyer or owner, you won't necessarily know if your lender has exceeded their annual MBS limit in offering insured mortgages.
A strong clue, however, would be if you go directly to a particular lender for a mortgage approval or have an upcoming renewal and see:
Even if a lender's rate (e.g. a big bank) is only slightly higher than a competitor's, it's always possible that the MBS limit is involved.
If a lender’s insured rates start climbing out of line with market rates, they may have reached their lower-cost MBS cap.
And even if you're not sure yet of your rate offer, here are a few practical ways to stay ahead of innocently signing on to extra mortgage costs:
If you're buying a home or your insured mortgage is about to renew, it's pretty much a no-brainer to work with a salaried, non-commissioned, highly trained True North broker. It only takes a few minutes to connect and outline a few financial and mortgage details, after which your expert will shop your options on your behalf.
We work with multiple lenders and, based on your unique situation, can source your best product and rate offer. It may save your mortgage day with extra cash to go with it.
If your lender's renewal offer shows rates higher than the market for insured mortgages, it may indicate that cheaper MBS funding is no longer available. Your True North expert broker can compare rates across the board during your renewal period.
Have you not received your renewal offer from your lender yet? You can request it up to six months in advance.
Set up a friendly, free mortgage renewal reminder here.
If you're nearing renewal, the sooner you decide on your strategy and get pre-approved or qualified with another lender, the sooner you can ensure you have enough time to make the switch to a better deal without incurring extra costs — ideally, about 30 days before your maturity date.
True North Mortgage has run the best-mortgage gauntlet for its clients for almost two decades, consistently earning the most 5-star reviews in the industry, by far. We're here to help you save with a simple mortgage process.
No. Your current mortgage remains intact. The impact may show up when you apply for a new insured mortgage — or when you go to renew with your lender, if it reprices your insured mortgage based on its current funding costs.
Yes. The annual MBS limit and associated fees are set by the federal government and may be adjusted. Changes are typically made as part of broader housing or financial policy decisions and are not guaranteed year to year.
Is the rate you see the rate you (can) get? Not always, but here's why.
Apples to apples, one variable rate may be costing you more.
Bank or True North broker? That's easy, we have your better rates and service.
