What is an Insured Mortgage?

January 1, 2019

An Insured Mortgage is a mortgage covered by Mortgage Default Insurance.

An insured mortgage is a mortgage covered by Mortgage Default Insurance.  This insurance is purchased to protect the lender (not the borrower) against any losses related to borrower default and foreclosure. Currently, there are three insurers in Canada; CMHC, Canada Guaranty and Genworth.  Each of these insurers offers two types of insurance coverage;

Transactional Insurance, referred to as a High Ratio Mortgage; The one-time premium is applied to mortgages with Loan to Values greater than 80% (sometimes added to lower LTV’s in unique situations).  This is the insurance that most consumers are aware of.  Borrowers are responsible for paying the insurance premium and it is typically added to the mortgage balance at the time their mortgage is advanced.  The premium is tiered and reduces as the client puts more down.  You can see a full breakdown of the premiums here: https://www.cmhc-schl.gc.ca/en/finance-and-investing/mortgage-loan-insurance/the-resource/mortgage-loan-insurance-and-premiums

Portfolio Insurance or Bulk Insurance; Applied to mortgages with Loan to Values less than 80%.  Most often borrowers are not even aware that this coverage has been purchased as the premium is paid for by the lender or bank.  Mortgage Finance Corporations by in large (like First National and MCAP)have used this type of coverage on all the mortgages they fund, Big Banks also use this insurance to a lesser extent.  Mortgage Finance Corporations buy this type of insurance in order to offer lower mortgage rates.  

Since default insurance is added to help protect the lender, mortgages that have been insured are viewed as a more secure and therefore borrowers often receive lower rates.  Note:  Recent Government changes have resulted in greater restrictions on what kinds of mortgages can be insured.  

You can read more here: Confused by your Rate Options? 

Note: Rules and guidelines are subject to change. Please inquire within.