Insured Versus Uninsured Mortgages in Canada: What the 20 Per Cent Down Payment Line Means

Key Takeaway

In Canada, the 20 per cent down payment line determines whether you need mortgage default insurance. Put down less than 20 per cent and your mortgage is insured (you pay an insurance premium but may qualify for lower rates). Put down 20 per cent or more and your mortgage is uninsured (no insurance premium, but lenders may charge slightly higher rates and apply stricter qualification rules). Both types face the same OSFI mortgage stress test.

Introduction

When you apply for a mortgage in Canada, the size of your down payment determines more than just how much you borrow. It places you into one of two distinct categories: insured or uninsured. The dividing line sits at 20 per cent of the purchase price, and crossing it changes your insurance costs, interest rates, qualification criteria, and the level of risk your lender assumes. Understanding these two mortgage types helps you plan your down payment strategy and anticipate your total borrowing costs.

According to the Financial Consumer Agency of Canada, mortgage default insurance protects the lender if you cannot make your payments (FCAC, 2026). The insurance premium is paid by you, the borrower, but the coverage benefits the lender. As foundational texts such as Principles of Finance explain, lenders use insurance to offset the higher risk of loans with smaller down payments.

Insured Versus Uninsured Mortgages: Quick Comparison

Feature	Insured Mortgage	Uninsured Mortgage
Down Payment	Less than 20%	20% or more
Mortgage Insurance Required	Yes (CMHC, Sagen, Canada Guaranty)	No
Insurance Premium	0.60% to 4.00% of loan amount	None
Premium Payment	Added to mortgage or paid upfront	Not applicable
Interest Rates	Often lower (lender risk is insured)	Often slightly higher
Maximum Amortization	25 years	Up to 30 years (or more for some products)
Stress Test	Required	Required
Property Type Restrictions	Primary residence, some restrictions	More flexibility
Purchase Price Limit	C$1,000,000 (as of 2026)	No legislated limit

Insured Mortgages: Lower Down Payment, Insurance Premium

An insured mortgage applies when your down payment is less than 20 per cent of the home’s purchase price. In this scenario, your loan-to-value ratio exceeds 80 per cent, and federal rules require you to purchase mortgage default insurance from a provider approved by the federal government: CMHC, Sagen, or Canada Guaranty.

How It Works

You must put down at least 5 per cent on the first C$500,000 of the purchase price and 10 per cent on any portion above that, up to a maximum purchase price of C$1,000,000 (insured mortgages are not available for homes priced above this threshold). The insurance premium ranges from 0.60 per cent to 4.00 per cent of your mortgage amount, depending on your down payment size. A smaller down payment means a higher premium. Most borrowers add the premium to the mortgage balance rather than paying it upfront.

Because the lender’s risk is covered by insurance, insured mortgages often come with lower interest rates than uninsured mortgages. The maximum amortization period is 25 years. You must qualify under the OSFI mortgage stress test, which requires you to qualify at the greater of your contract rate plus 2 percentage points or the current qualifying rate (as of August 2026, approximately 5.25 per cent).

Pros

• Lower down payment required (as little as 5 per cent), making homeownership accessible sooner.
• Often lower interest rates because the lender’s risk is insured.
• Predictable costs: the insurance premium is disclosed upfront.

Cons

• Insurance premium adds thousands of dollars to your loan (on a C$400,000 mortgage with 10 per cent down, the premium is approximately C$10,440).
• Maximum 25-year amortization means higher monthly payments compared to a 30-year term.
• Purchase price capped at C$1,000,000.
• Property must be owner-occupied; investment properties and some property types are excluded.

Uninsured Mortgages: Larger Down Payment, No Insurance Premium

An uninsured mortgage applies when you put down 20 per cent or more. With a loan-to-value ratio of 80 per cent or lower, you do not need mortgage default insurance. The lender assumes the full risk of your loan without a third-party insurer backing it.

How It Works

You provide at least 20 per cent of the purchase price as a down payment. There is no insurance premium to pay, which saves you several thousand dollars upfront and reduces your total loan balance. However, because the lender carries more risk, uninsured mortgages often come with slightly higher interest rates (typically 0.10 to 0.25 percentage points higher than insured rates, though this spread varies by lender and market conditions).

You qualify under the same OSFI stress test as insured borrowers. Uninsured mortgages allow longer amortization periods (up to 30 years with most lenders, and some offer even longer terms for specific products), which reduces your monthly payment. There is no legislated purchase price cap, and you have more flexibility to finance investment properties, secondary residences, and non-standard property types.

Read also: CMHC Mortgage Insurance in Canada: When You Need It and What It Costs

Pros

• No insurance premium, saving thousands of dollars.
• Longer amortization options (up to 30 years) lower your monthly payments.
• No purchase price cap; available for higher-priced homes.
• Greater property type flexibility (investment properties, vacation homes, rural properties).

Cons

• Requires a larger upfront down payment (at least 20 per cent), which delays homeownership for buyers still saving.
• Often higher interest rates because the lender assumes more risk.
• Longer time to build up the required down payment.

Which Mortgage Type Fits Your Situation?

Choose an insured mortgage if: you have saved a smaller down payment (5 to 19 per cent), want to enter the housing market sooner, and are buying a home under C$1,000,000 as your primary residence. The insurance premium is a cost you accept in exchange for earlier homeownership and lower rates.

Choose an uninsured mortgage if: you have saved at least 20 per cent, want to avoid paying an insurance premium, need a longer amortization to keep monthly payments manageable, or are purchasing a property above C$1,000,000 or an investment property. The higher down payment and potentially higher rate are offset by no insurance cost and greater flexibility.

For first-time buyers: insured mortgages are often the practical path, since saving 20 per cent takes years. The insurance premium can be financed into the mortgage, and the lower rates partially offset the cost.

For repeat buyers or those with larger savings: uninsured mortgages eliminate the insurance premium and offer more product choice, especially for investment properties or higher-priced homes.

Conclusion

The 20 per cent down payment threshold divides Canadian mortgages into two distinct categories. Insured mortgages make homeownership accessible with smaller down payments and lower rates, but require an insurance premium and restrict amortization and property type. Uninsured mortgages eliminate the premium and offer greater flexibility, but demand a larger upfront investment and may come with slightly higher rates. Both types face the same qualification stress test. Your choice depends on how much you have saved, how quickly you want to buy, and what property you are purchasing.

As of August 2026, rates and rules can change. Verify current insurance premiums, qualifying rates, and product availability with a licensed mortgage broker or your financial institution before making your decision.

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Financial Disclaimer: This article provides general educational information only and is not personalized financial, lending, legal, or tax advice. Mortgage default insurance requirements, premiums, qualifying rates, and product availability vary by lender, province, and your individual circumstances. Consult a licensed mortgage professional or the Financial Consumer Agency of Canada for guidance specific to your situation.