What is an Insured Mortgage?

Insurance that protects the lender, but allows you more mortgage options.

An insured mortgage (often referred to as a high-ratio mortgage) is one that is covered by mortgage default insurance (which is different than private Mortgage Protection Insurance).

This type of insurance is paid by you, the borrower, to protect the lender against default and foreclosure. It's automatically applied to mortgages with less than 20% down payment (a Loan-to-Value (LTV) greater than 80%), though it also may be applied for unique situations, as well.

In the event of defaulting on your mortgage, you would still be on the hook for the loan if you can't pay, and you could lose the property through foreclosure. If the worst happens, the lender sells the property to recoup its money and the insurer compensates them for any principal shortfall, thereby lowering the lender's risk exposure for the loan and making it more 'secure.'

Without mortgage default insurance, the lender wouldn't consider taking on these 'riskier' mortgages — so it helps them offer more mortgages to more people. In fact, you can possibly get a mortgage with only a 5% down payment with this type of insurance.

Insured mortgages are considered more secure.

The added security of the default insurance allows lenders to offer lower rates or better mortgage options despite the lower amount of down payment (such as longer terms or pre-payment privileges). Please note that recent federal government changes mean there are now greater restrictions on what kinds of mortgages can be insured, depending on the provider.

Who offers mortgage default insurance?

Currently, there are three mortgage insurers in Canada:

• CMHC (Canadian Mortgage and Housing Corporation) is a Crown corporation and the most well-known of the three, so insured mortgages are often referred to as 'a CMHC mortgage.'
• Sagen (formerly Genworth)
• Canada Guaranty

Your lender will arrange for the purchase of your mortgage insurance. You can check which mortgage provider they use, or indicate which one you'd prefer to use.

How do I pay mortgage insurance?

The above providers offer two types of mortgage insurance coverage:

Transactional Insurance, referred to as a High Ratio Mortgage

• A one-time premium is applied to mortgages with an LTV ratio greater than 80% (in unique situations, this premium may also be added to mortgages with lower LTVs)
• It can be paid as a lump sum, or be added to your mortgage to be included in your payments (amount is added when your mortgage is advanced)
• If included in monthly payments, the premium is tiered and reduces as more of the principal is paid off. Here is a full breakdown of CMHC's premiums

Portfolio Insurance or Bulk Insurance

• This premium is an option for lenders on mortgages with an LTV of less than 80%
• It is paid by the lender, with borrowers often not being aware that this coverage has been purchased
• It is often used by Monoline Lenders (such as THINK Financial, First National, and MCAP) in order to offer lower mortgage rates
• To a lesser extent, banks may also consider using this type of insurance

How long do I need to pay?

You can opt out of your monthly mortgage insurance payments once your LTV ratio drops below 80%. And, once it falls below 78%, the lender is legally bound to cancel your policy.

We'll help you cut through the mortgage red tape.

The rules around mortgages, insured mortgages — and even affording a mortgage — are subject to change.

In fact, there have been a number of changes in the past few years, such as in 2016 (Confused By Your Rate Options?), 2020 (CMHC Tightens Rules), and most recently in June 2021, the tougher stress-test affordability rules set out by the federal government.

We really know mortgages, and are always up-to-date on the latest changes and what they mean for your situation. We can quickly set out all your details. You'll be able to make a clear decision for your best mortgage experience, ever.

Plus, a few minutes with True North Mortgage could save you thousands with your best-possible rate.