Insured, or “high-ratio” mortgages, are generally those where the buyer is making a down payment of 20% or less. In other words, mortgages where the loan-to-value is between 80.01% and 95%.
By Canadian law, in order for financial institutions to provide these types of mortgages they must be default-insured by one of Canada’s three main default insurance providers: Canada Mortgage and Housing Corporation (CMHC), Sagen or Canada Guaranty.
Contract rates for insured mortgages are typically among the lowest available since the insurance provider is taking on the risk of default rather than the lender, in turn lowering the lender’s cost of funding. However, when comparing overall costs, it’s important to factor in the cost of insurance for insured mortgages, which is typically rolled into the total mortgage amount and doesn’t have to be paid upfront. Certain provinces do, however, charge tax on the insurance amount, which must be paid at the time of closing.
Restrictions that apply to insured mortgages include: a maximum property value of $1 million, a maximum amortization of 25 years, the property must be located in Canada, standard debt qualification ratios apply, refinances are not applicable and the property must be owner-occupied.