What Are the Differences Between Insured, Insurable and Uninsurable Mortgages?

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A mortgage can be insured or uninsured. An insured mortgage has mortgage default insurance, while an uninsured mortgage does not.

For borrowers, mortgage insurance affects both the upfront cost and the interest rate offered by lenders. A borrower-paid insured mortgage adds a mortgage default insurance premium, but insured mortgages often have lower rates than uninsured mortgages. Whether the lower rate offsets the insurance premium depends on the rate difference and how long the borrower keeps the mortgage.

The terms insurable and uninsurable are usually used to describe low-ratio mortgages with a down payment of 20% or more. They refer to whether the mortgage is eligible for mortgage default insurance, even if the mortgage is not currently insured.

An insurable mortgage is a mortgage that meets the rules for portfolio mortgage default insurance.

An uninsurable mortgage is a mortgage that does not meet the rules for mortgage default insurance. This means it cannot be insured by either the borrower or the lender. A mortgage may be uninsurable because of the property type, purchase price, amortization period, loan purpose, credit score, or debt service ratios.

The rules for individually insured (often high-ratio) mortgages and low-ratio insurable mortgages are not always the same. For example, first-time home buyers may qualify for an insured mortgage with a 30-year amortization, while a low-ratio mortgage with 20% or more down needs an amortization of 25 years or less to be insurable. Also loans on homes up to $1.5 million are eligible for individual insurance while at the portfolio level, home value needs to be under $1 million.

This is why a mortgage with 20% or more down can be uninsured, insured, insurable, or uninsurable. The key question is not only whether the borrower has enough down payment, but also whether the mortgage meets the specific insurance rules that apply to that type of loan.

Insurable mortgages have specific requirements that were the same as those of an insured mortgage until December 2024, but they are for mortgages with a down payment of 20% or more. Only regulated mortgages with a down payment of less than 20% are by law required to be insured.

Insurable mortgages will have to meet the following requirements in order to be insurable:

• Owner-occupied if the property is single unit
• Purchase price of less than $1 million
• Credit score of 600 or higher for at least one borrower or guarantor
• Total debt service ratio of 44% or less and gross debt service ratio of 39% or less
• Residential property located in Canada
• Pass the mortgage stress test except where a qualifying straight-switch exemption applies
• Maximum amortization of 25 years

The borrower pays for insurance premiums for an insured mortgage, but pays no insurance premiums for an insurable mortgage.

Uninsurable mortgages are not eligible to be insured because they lack one or more mortgage insurance requirements. A mortgage is typically uninsurable when it has any of the following:

• A purchase price or property value at or above the applicable insurance cap
• An amortization period longer than the allowed maximum (over 25 years for low-ratio insurable loans)
• A loan purpose that is not eligible, such as a refinance
• A property type that is not eligible, such as a single-unit rental or a non-owner-occupied home
• A borrower's credit score below the minimum (under 600)
• Debt service ratios above insurer limits (a gross debt service ratio over 39% or a total debt service ratio over 44%)

Insured vs. Insurable vs. Uninsurable Mortgages

Single-unit rental property mortgages are not eligible for mortgage default insurance, while rental properties with two to four units may be insurable if they meet the insurer's requirements, but they require a down payment of at least 20%.

When comparing insurable and uninsurable mortgages, the main difference is whether the mortgage meets the rules for mortgage default insurance. Insurable mortgages must satisfy specific requirements for the property type, purchase price, amortization period, borrower credit score, debt service ratios, and loan purpose.

Uninsurable mortgages do not meet one or more of these insurance rules. This may include mortgages for certain rental properties, refinances, properties above the applicable price limit, amortizations that exceed the allowed maximum, borrowers with lower credit scores, or borrowers with debt levels above insurer limits.

Uninsurable mortgages may offer more flexibility because they are not bound by mortgage insurance rules. For example, some private lenders may approve borrowers who do not qualify under the federal mortgage stress test or traditional insurer guidelines. However, this flexibility usually comes with higher mortgage rates, larger down payment requirements, and additional lender or broker fees.

How Does This Affect Me?

For borrowers, the main difference between insurable and uninsurable mortgages is usually the mortgage rate. Insurable mortgages often have lower rates because the lender may be able to insure the mortgage and reduce its risk. Uninsurable mortgages usually have higher rates because they cannot be insured.

Insured mortgages often have the lowest mortgage rates, but they also come with a mortgage default insurance premium. This premium is paid by the borrower, while the lower rate may partly or fully offset the cost depending on the rate difference and how long the borrower keeps the mortgage.

For example, a $500,000 home with a 10% down payment would require an insured mortgage, and the borrower would pay a mortgage default insurance premium.

With a 20% down payment, the same home may qualify as an insurable mortgage. Mortgage default insurance would not be mandatory for the borrower, but the lender may still be able to insure the mortgage. The borrower gets a lower rate than they would with an uninsurable mortgage.

If the $500,000 home is a single-unit rental property, the mortgage would be uninsurable, even with a 20% or larger down payment. Since the mortgage cannot be insured, the borrower would usually face a higher mortgage rate.

A larger down payment can also help reduce the rate difference. For example, an insurable mortgage with a 35% down payment may receive a rate close to an insured mortgage, without the borrower needing to pay the same high-ratio insurance premium.

Insurable mortgage rates are very close to insured high-ratio rates, and the gap depends mostly on how large a down payment you make. With 20% down, an insurable mortgage usually carries a slightly higher rate than an insured high-ratio mortgage. As the down payment rises toward 35% or more, the rate converges with — and can match — the insured rate.

On a high-ratio insured mortgage, the borrower pays a sizeable premium, and the lender's insurance cost is zero. On a 65% loan-to-value insurable mortgage (35% down) the borrower pays nothing, and the lender pays a small bulk premium, priced low because the loan-to-value is low. That premium is the entire cost that the lender has to recover through the rate. At 20% down it is large enough to appear as a spread above the insured rate; as the down payment rises toward 35%, the premium shrinks toward a rounding error, so the lender can absorb it and competition pushes the rate down to the insured level. The convergence comes from the premium getting small — not from any funding edge the insured loan lacks.

Insuring also carries costs beyond the premium. The lender takes on eligibility certification, representations and warranties to the insurer, ongoing reporting, and the risk of coverage being rescinded if a loan turns out not to conform. That operational and tail risk is one reason a lender may choose not to bulk-insure a low loan-to-value mortgage at all, instead pricing it as an uninsured conventional loan — and part of why the spread does not fully close for every lender even at high down payments.

The real contrast is with an uninsurable mortgage. A loan that cannot be insured at all — for example, a single-unit rental, a refinance, or a property above the price cap — carries a higher rate because the lender has neither the option to insure it nor the funding advantages that come with it.

Insured vs Insurable Mortgage Rates

Insured mortgages fall under transactional insurance, which is insurance for an individual mortgage. With transactional insurance, the borrower is made aware that their mortgage is default-insured as they will be paying the insurance premiums.

Lenders may choose to get portfolio insurance for their insurable mortgages. Portfolio insurance is also known as bulk insurance, since the lender will be getting insurance to cover multiple mortgages. As this is entirely behind-the-scenes with the lender, the borrower won’t be made aware that the lender is choosing to get insurance on their mortgage, and it won’t impact the borrower as the lender will be the one paying the insurance premiums.

One reason that lenders choose to get portfolio insurance is to protect themselves from mortgage defaults. Even though borrowers of an insurable mortgage will be making a down payment of at least 20%, it doesn't guarantee that they won't default on their mortgage. Having portfolio insurance allows lenders to get optional insurance without requiring the borrowers to pay for it.

Another reason that lenders choose to insure mortgages is for securitization, where the lenders pool mortgages together and sell them off to investors. These pooled mortgages are called Mortgage-Backed Securities (MBS). In Canada, mortgage-backed securities issued by National Housing Act (NHA) approved lenders can be insured by the CMHC.

Securitization is popular amongst B-lenders, such as CMLS, First National, MCAP, and Home Trust. Selling mortgages off as a MBS allows these smaller lenders to originate more mortgages by freeing up capital that would otherwise be tied into these mortgages. This concept led to the proliferation of subprime mortgages in the United States, which eventually led to the subprime mortgage crisis.

All mortgages within a MBS must be insured. That means that the lender will need to get insurance for their insurable mortgages in order for them to be included in a MBS pool. The CMHC allows NHA MBS to have mortgage default insurance from the CMHC or from a private mortgage insurer, such as Canada Guaranty or Sagen. The lender will need to pay for the default insurance on top of CMHC fees for guaranteeing the MBS.

CMHC guarantee fees are charged for NHA MBS in exchange for guaranteeing the interest and principal of these mortgage-backed securities for MBS investors. The mortgage issuers who have bundled these mortgages into a NHA MBS will have to pay the CMHC guarantee fees.

Having the CMHC guarantee a MBS makes it much more attractive for investors. Insurable mortgages can also be used as collateral for Canadian covered bonds registered with the CMHC, however, the CMHC does not guarantee covered bonds.

CMHC guarantee fees depend on the term of the MBS and the size of the MBS. The longer the MBS term, the higher the fee. MBS containing multi-family loans and social housing loans will be eligible for a lower CMHC fee. MBS issuers that have more than $9 billion in MBS guarantees per year will also have to pay a higher CMHC fee.

There is also a CMHC application fee of 2 basis points (0.02%) of the MBS amount. For a full list of terms, MBS pool types, and CMHC fees, visit the CMHC's website.