Buying a home is one of the biggest financial decisions you’ll ever make, and securing a mortgage is a major part of that journey.
But what happens if you don’t have a large down payment?
Or if your lender wants added protection before approving your loan?
That’s where an insured mortgage comes into play.
Understanding what an insured mortgage is, why it exists, and how it benefits you can help you make informed decisions.
This guide will break it down in simple terms—no jargon or confusion.
What Is an Insured Mortgage?
An insured mortgage is a home loan backed by mortgage default insurance.
This type of insurance protects your lender if you default on the loan.
You’ll typically need an insured mortgage if your down payment is less than 20% of the home’s purchase price.
In many countries., including Canada and the U.S., mortgage insurance is a requirement for high-ratio loans—loans where the borrower has a small down payment compared to the property value.
You might wonder: Why does my lender need protection?
The answer is simple—when you put down less than 20%, your lender is taking on more risk.
Insuring the loan reduces their financial exposure, making qualifying for a mortgage easier.
How an Insured Mortgage Works
If you’re applying for a mortgage with a down payment of less than 20%, your lender will typically arrange for mortgage insurance through a provider.
In Canada, the three main mortgage insurers are:
- Canada Mortgage and Housing Corporation (CMHC)
- Sagen (formerly Genworth Canada)
- Canada Guaranty
Here’s how it works:
- You apply for a mortgage through a lender.
- If your down payment is under 20%, the lender submits your mortgage application to an insurance provider.
- The insurance provider assesses your financial situation (income, credit history, debt levels, etc.).
- If approved, you pay a mortgage insurance premium—this can be a lump sum or added to your monthly payments.
- Your mortgage is now insured, reducing the lender’s risk and increasing your chances of approval.
Benefits of an Insured Mortgage
You might be thinking, Do I really want to pay for mortgage insurance?
While it does add an extra cost, several advantages make an insured mortgage worth considering:
1. Easier Mortgage Approval
Because the lender is protected, they’re often more willing to approve your mortgage—even if you have a lower down payment.
This makes homeownership more accessible.
2. Lower Interest Rates
Insured mortgages generally come with lower interest rates compared to uninsured mortgages.
Since the lender’s risk is reduced, they can offer you more competitive rates, potentially saving you thousands over the life of your loan.
3. Opportunity to Buy Sooner
Without mortgage insurance, you’d need to save at least 20% for a down payment.
With an insured mortgage, you can purchase a home with as little as 5% down (in Canada) or 3% down (in the U.S.), getting you into homeownership faster.
4. Better Loan Terms
Since lenders feel more secure with an insured mortgage, you may have access to better loan terms, such as higher borrowing limits and longer amortization periods.
The Cost of Mortgage Insurance
The cost of mortgage insurance varies depending on several factors, including your loan amount and down payment size.
Generally, the insurance premium is a percentage of the total loan amount.
Here’s an example:
- Canada: CMHC premiums range from 2.8% to 4% of the mortgage amount.
- U.S.: PMI costs typically range from 0.5% to 1.5% annually, depending on your credit score and down payment.
You can pay the premium upfront or add it to your mortgage payments.
How to Get an Insured Mortgage
Getting an insured mortgage isn’t as complicated as it sounds.
Follow these steps to increase your chances of approval:
1. Save for a Down Payment
Even though you can buy with a smaller down payment, the more you put down, the lower your insurance premium will be.
2. Maintain a Good Credit Score
A higher credit score can help you qualify for a mortgage, as well as get you better interest rates and lower insurance costs.
3. Work with a Mortgage Broker
A broker can help you navigate different lenders and insurance providers to find the best deal for your situation.
4. Know Your Debt-to-Income Ratio
Lenders and insurers assess your ability to repay the loan based on your income and existing debts.
Keeping your debt levels low will improve your chances of approval.
5. Get Pre-Approved
A mortgage pre-approval gives you an estimate of how much you can borrow and reassures sellers that you’re a serious buyer.
Common Myths About Insured Mortgages
Myth #1: Mortgage Insurance Protects You
No, mortgage insurance protects the lender, not you. If you default on your mortgage, the insurer compensates the lender, but you could still lose your home.
Myth #2: It’s Only for First-Time Buyers
That’s not true! Anyone with a down payment under 20%—regardless of whether they’re a first-time or repeat buyer—will likely need mortgage insurance.
Myth #3: You’re Stuck Paying for Mortgage Insurance Forever
In many cases, mortgage insurance is only required until your loan balance reaches 78-80% of the home’s value.
Some lenders automatically remove it, while others require you to request cancellation.
Expert Tips to Make the Most of an Insured Mortgage
- Increase Your Down Payment If Possible – Even an extra 1-2% can lower your insurance premium and reduce overall costs.
- Consider an Accelerated Payment Schedule – Making biweekly payments instead of monthly can help you pay off your mortgage faster and build equity sooner.
- Compare Lenders and Insurance Providers – Not all lenders and insurers have the same rules or premiums. Shop around before committing.
- Refinance Strategically—If you’re considering refinancing in the future, check how it impacts your mortgage insurance. If you increase your loan amount, you may need to pay a new premium.
- Look Into Government Incentives – Some programs assist first-time buyers with mortgage insurance costs. Research your options to see if you qualify.
Final Thought on Insured Mortgages
An insured mortgage can be a game-changer, making homeownership more accessible while keeping interest rates low.
While it does come with added costs, the benefits—such as easier approval, lower rates, and a faster path to homeownership—can outweigh the drawbacks.
By understanding the process, comparing options, and applying expert tips, you can make smart decisions that put you on the path to owning your dream home.
Now that you know the ins and outs of insured mortgages, what’s your next step?
Whether you’re buying your first home or exploring options, take the time to assess your finances and find the best mortgage solution for your needs.
