What "insured" means on a mortgage
Mortgage default insurance protects the lender, not the borrower. If the borrower stops paying and the home sells for less than what is owed, the insurer covers the lender's loss. A mortgage with less than 20% down needs this insurance. A mortgage with 20% or more down is normally treated as uninsured, and the lender sets its own maximum amortization.
The borrower pays for the insurance through a premium. Premium rates and how the premium is charged are set out by the insurer and your lender, so ask how much it is and whether it will be added to the amount you borrow. If you are not sure whether your own mortgage is insured, your commitment letter or your lender can tell you.
- Insured: less than 20% down, with mortgage default insurance. Amortization of up to 30 years for first-time buyers and/or new builds, and up to 25 years otherwise.
- Uninsured: 20% or more down. The lender sets the maximum amortization.
Why lenders price them differently
From the lender's side, an insured mortgage carries less risk of loss, because the insurer stands behind it. That is a large part of why insured mortgages are often priced lower than uninsured ones, even though the borrower has put less money down. The borrower's own credit, income and property still matter, but the insurance changes the starting point for pricing.
For this reason the Bank of Canada's monthly series of effective rates on new mortgages splits insured from uninsured lending, for both fixed and variable rates, and splits fixed terms into under three years, three to under five, and five years and over. The fixed mortgage checker and the variable mortgage checker pick the series that matches your answers.
Same rate, two scores
Take an illustrative five-year fixed rate of 4.49% on a $400,000 mortgage. Scored as an insured mortgage, it gets 86 out of 100 ("grade B"), 0.15% above a best published rate of 4.34% (series: the lowest published rate for the same term and insurance class in Ontario). Scored as uninsured, the identical rate gets 86 ("grade B"), 0.15% above a best published rate of 4.34% (series: the lowest published rate for the same term and insurance class in Ontario).
Nothing about the offer changed between those two sentences. Only the yardstick did. That is why the insured question sits right next to the rate box in the checker, and why a friend's rate with a different down payment is not a fair comparison for yours.
- Rate
- 4.49%
- Score
- 86
- Verdict
- grade B
- grade
- B
- Benchmark
- 4.34%
- typical
- 4.37%
- Gap
- 0.15%
- Direction
- above
- Cost vs benchmark
- $2,872
What a small gap costs on an insured-size mortgage
Insured mortgages are often smaller than uninsured ones, but a gap still adds up. On $400,000 with a 25-year amortization, 4.74% instead of 4.49% raises the payment by $55.90 a month and adds $4,793 of interest over a 5-year term. You also finish the term owing $1,439 more. If the same gap lasted for the whole amortization, it would add up to about $16,771 of interest.
Run your own balance through the rate difference calculator, or see the full term in the mortgage payment calculator.
| At 4.74% | At 4.49% | |
|---|---|---|
| Monthly payment | $2,267.57 | $2,211.67 |
| Interest over 5 years | $88,621 | $83,828 |
| Balance after 5 years | $352,567 | $351,127 |
Insurance changes more than the rate
The insured or uninsured label follows the mortgage into later decisions, so it is worth knowing what it touches.
- Amortization: with less than 20% down, the maximum is 30 years for first-time buyers and/or new builds and 25 years otherwise. See amortization and your rate.
- Qualifying: you may need to pass a mortgage stress test to qualify. Ask your lender how it applies to the mortgage you are quoted.
- Switching at renewal: a new mortgage loan insurance premium may apply if the loan amount increases or the amortization is extended when you switch. Other switching costs can include discharge, registration, transfer or assignment fees and an appraisal. See switching lenders at renewal.
- Charge type: a collateral-charge mortgage can cost more to switch than a standard one, whatever its insurance status.
Questions to ask before you compare quotes
If you are buying with close to 20% down, it can help to ask for quotes on both sides of the line, so you can see how the rate, the premium and the amortization limit change together.
- Is this quote for an insured or an uninsured mortgage?
- If insured, what is the premium, and is it added to the amount I borrow?
- What amortization does the quote assume?
- Is the rate the same if I change my down payment or amortization?
- Grade the quote with the matching insured or uninsured setting in the checker, then compare competing quotes on the same basis.