A mortgage is a loan taken out to purchase a property. In Canada, mortgage loans can either be insured or uninsured. The main difference between the two is the level of protection offered to the lender in case of default.

An insured mortgage is a mortgage that is insured by the Canadian Mortgage and Housing Corporation (CMHC), Canada Guaranty, or Genworth Canada. This type of mortgage is usually taken out by borrowers who have a lower down payment or are not able to provide a 20% down payment. The insurance protects the lender in case the borrower defaults on their mortgage payments. As a result, lenders are more willing to offer lower interest rates to borrowers with insured mortgages.

An uninsured mortgage, on the other hand, is a mortgage that is not insured by the CMHC or any other insurance company. This type of mortgage is usually taken out by borrowers who have a larger down payment, typically 20% or more, and have a higher credit score. Lenders view uninsured mortgages as less risky and may offer lower interest rates to borrowers with good credit.

Let’s take a look at two examples of how an insured and uninsured mortgage differs financially:

Example 1: A borrower wants to purchase a $400,000 property and has a down payment of 10%. If the borrower takes out an insured mortgage, the lender may require mortgage insurance, which can add an additional cost to the borrower’s monthly payments. The interest rate on an insured mortgage may also be higher compared to an uninsured mortgage.

Example 2: A borrower wants to purchase a $500,000 property and has a down payment of 25%. If the borrower takes out an uninsured mortgage, they may have a lower interest rate compared to an insured mortgage. However, the borrower will have to pay a higher down payment, which can put a larger strain on their finances upfront.

In conclusion, the choice between an insured and uninsured mortgage in Canada depends on the borrower’s financial situation and risk tolerance. Borrowers with a lower down payment or lower credit score may prefer an insured mortgage, while borrowers with a higher down payment and good credit may prefer an uninsured mortgage. It is important for borrowers to consider all factors and compare different options before making a final decision.