Understanding Insured Mortgages
An insured mortgage is a type of mortgage that requires mortgage default insurance because the borrower is making a smaller down payment. In Canada, this typically applies when the down payment is less than 20% of the home’s purchase price. The insurance protects the lender, not the borrower, in case the mortgage is not repaid.
In Ontario and across the GTA, insured mortgages are commonly used by first-time buyers and others who prefer to enter the housing market sooner without waiting to save a larger down payment. Understanding how insured mortgages work helps borrowers assess affordability and long-term costs.
How Insured Mortgages Work
Mortgage default insurance allows lenders to offer mortgages with lower down payments while managing risk.
* Down Payment Requirements
Insured mortgages are required when the down payment is below 20%. The minimum down payment depends on the purchase price of the home and follows federal guidelines.
* Insurance Premiums
The insurance premium is calculated as a percentage of the mortgage amount and is usually added to the mortgage balance. This means it is repaid over time as part of regular mortgage payments rather than paid upfront.
Who Provides Mortgage Default Insurance
In Canada, mortgage default insurance is provided by approved insurers. These insurers set eligibility criteria and premium structures in line with federal regulations.
Borrowers do not choose the insurer directly; instead, the lender arranges the insurance as part of the mortgage process. Understanding the role of insurers helps clarify why insured mortgage rules are standardized across lenders.
Benefits and Trade-Offs of Insured Mortgages
Insured mortgages offer both advantages and considerations that borrowers should weigh carefully.
* Benefits
Insured mortgages allow buyers to purchase a home with a smaller down payment. They may also offer access to lower interest rates compared to uninsured mortgages, as the insurance reduces lender risk.
* Trade-Offs
The main trade-off is the insurance premium, which increases the total amount borrowed. Insured mortgages are also subject to specific rules, such as purchase price limits and amortization restrictions.
Comparing insured mortgages with other mortgage solutions can help borrowers determine which structure aligns best with their financial plans.
Insured Mortgages and Mortgage Planning
Insured mortgages can play an important role in early homeownership planning. Many borrowers use them as a starting point and later reassess options during mortgage renewals as equity grows and financial circumstances change.
Using available mortgage tools can help estimate payments, premiums, and long-term affordability before choosing an insured mortgage.
For authoritative guidance, borrowers can review information from the Canada Mortgage and Housing Corporation, consumer mortgage education from the Government of Canada, and broader interest rate context from the Bank of Canada.
Next Steps for Mortgage Planning
If you are considering an insured mortgage, speaking with a qualified SMM Mortgage advisor can help clarify eligibility requirements, insurance costs, and how this option fits within your long-term homeownership goals.
Frequently Asked Questions
- 1. What is an insured mortgage?
It is a mortgage that requires default insurance because the down payment is less than 20%. - 2. Who pays for mortgage default insurance?
The borrower pays the premium, usually by adding it to the mortgage amount. - 3. Does mortgage insurance protect the borrower?
No. It protects the lender in case of default. - 4. Are insured mortgage rates lower?
They may be, because insurance reduces risk for the lender. - 5. Can an insured mortgage become uninsured later?
Yes. As the mortgage balance decreases and equity increases, it may no longer be considered high-ratio.