1. Insured Mortgage
If a client puts down less than 20%, the mortgage must be insured through a provider such as CMHC, Sagen, or Canada Guaranty.
- The property, borrower, and mortgage must meet the insurer’s qualification rules.
- The insurer charges a fee (typically around 4%), which is added to the mortgage amount.
- The client doesn’t pay this out of pocket up front, but they do pay it over time through their regular mortgage payments.
- These mortgages are often sold by banks to investors, bundled into Mortgage-Backed Securities.
The insurance protects the lender, not the borrower, in case of default.
2. More Than 20% Down: “Insurable” vs. “Uninsurable”
When the down payment is 20% or more, the mortgage is not considered “Insured”, but lenders prefer it when it qualifies as “insurable.”
Insurable Mortgages
Even though the client isn’t paying for insurance, these mortgages:
- They follow the same insurer guidelines (e.g., CMHC rules).
- Are eligible for the National Housing Act Mortgage-Backed Securities (NHA MBS) program, backed by the Government of Canada.
- Can be sold by the bank to investors as part of these securities, making them low-risk and attractive.
This frees up capital for the bank to lend again, a “rinse and repeat” model.
These mortgages have higher interest rates than “Insured” (less than 20% down) mortgages, but typically come with better interest rates than “Uninsured” mortgages, because the risk to the bank is lower.
In these cases, the bank pays the insurance premium to make the mortgage marketable.
To the client, everything looks and feels the same; the mortgage is still serviced by their bank.
Uninsurable Mortgages
These don’t meet insurer guidelines (for example):
- 30+ year amortization
- Refinances
- Rental properties
Because they can’t be insured:
- The bank can’t easily resell them on the market.
- They must be kept on the bank’s books, using their own capital.
- These deals are riskier and more expensive for lenders to carry.
As a result, they typically come with higher interest rates.
Why It Matters
Lenders prefer insured or insurable mortgages because they carry less risk and can be resold, which keeps costs lower and money flowing.
That’s why, when clients put down more than 20%, they pay higher interest rates than if they put less than 20% down (which seems a bit counterintuitive), but they can get better rates if their deal qualifies as insurable.
Contact me know if you’d like to discuss this or. I’m always happy to help break this stuff down!
