The Complete Guide to Uninsured Mortgages: What They Are & When You Need One

In the Canadian real estate market, the phrase “20% down” is a magic number. It is the threshold that changes the entire structure of your loan.

Most first-time homebuyers are familiar with Insured Mortgages (often called “High-Ratio” mortgages), where you put down less than 20% and must pay a premium to CMHC, Sagen, or Canada Guaranty.

But what happens when you have a larger down payment, or you are buying a luxury home? You enter the world of Uninsured Mortgages.

This guide breaks down exactly what an uninsured mortgage is, how it differs from other loan types, and the strategic advantages it offers regarding monthly payments and purchasing power.

What is an Uninsured Mortgage?

An uninsured mortgage (often called a “Conventional Mortgage”) is a home loan that is not backed by default insurance.

Because the lender does not have the safety net of government-backed insurance if you default on payments, they take on more risk. As a result, the qualification criteria are different, and the rules regarding your property value and amortization period change significantly.

The 3 Criteria for an Uninsured Mortgage

You typically fall into the “Uninsured” category if any of the following apply to your transaction:

1. High Down Payment: You are putting 20% or more down on the property.
2. Property Price: The purchase price of the home is $1 Million or more (CMHC insurance is not available for homes over $1M).
3. Amortization: You want a repayment period longer than 25 years (e.g., 30 years).

The “Mortgage Trifecta”: Insured vs. Insurable vs. Uninsured

This is where many borrowers get confused. In Canada, there are actually three categories, not just two.

 

Feature	Insured	Insurable	Uninsured
Down Payment	Less than 20%	20% or more	20% or more
Insurance Cost	Paid by Borrower	Paid by Lender (backend)	None
Amortization	Max 25 Years	Max 25 Years	Max 30 Years
Purchase Price	Under $1 Million	Under $1 Million	No Limit
Interest Rates	Lowest	Medium	Slightly Higher

 

• Insured: You pay the insurance premium.
• Insurable: You put 20% down, but you agree to strict rules (25-year limit) so the lender can insure it on the back end to give you a better rate.
• Uninsured: You break the rules (want 30 years or buying a $1M+ home). The lender cannot insure it at all.

The Pros and Cons of Going Uninsured

The Advantages

Why would someone choose an uninsured mortgage if the rates are slightly higher?

1. 30-Year Amortization: This is the biggest advantage. By stretching your payments over 30 years instead of 25, you significantly lower your monthly obligation. This can help with cash flow or help you qualify for a larger loan amount.
2. Luxury Purchasing Power: If you are buying a home in Vancouver or Surrey over the $1 Million mark, you must use an uninsured mortgage.
3. Refinancing Flexibility: If you already own a home and want to pull equity out (up to 80% of the value) for renovations or debt consolidation, this is always an uninsured transaction.

The Disadvantages

1. The Rate Difference: Uninsured mortgage rates are typically 0.10% to 0.30% higher than insured rates. This is because the lender is absorbing the risk of default without government protection.
2. The Down Payment: You must have access to at least 20% of the purchase price (plus closing costs).

Does the Stress Test Apply?

Yes. Even with an uninsured mortgage, if you are borrowing from a federally regulated lender (like a major bank), you must pass the Mortgage Stress Test. You must prove you can afford payments at the contract rate plus 2% or 5.25%, whichever is higher.

Note: Some credit unions and alternative lenders have different stress test requirements for uninsured mortgages, offering more flexibility.

Is an Uninsured Mortgage Right for You?

An uninsured mortgage is not just a requirement for luxury buyers; it is a strategic tool.

If you are struggling with monthly cash flow, opting for an uninsured mortgage with a 30-year amortization might save you hundreds of dollars a month compared to a restricted 25-year insurable mortgage. Conversely, if getting the absolute lowest interest rate is your priority and your home is under $1M, you might opt to stick to the stricter “Insurable” rules.

Summary

Understanding the difference between insured and uninsured lending is vital to planning your financial future.

• Insured = Less down, lower rate, stricter limits.
• Uninsured = More down, flexibility, higher purchasing power.

While this guide covers the theory, the application depends on your unique financial picture.