FAQ:
all about insured Mortgages

We’re here to help you navigate through the different types of mortgages and interest rates available to first-time home buyers. Many questions may come up – especially if this is your first time going through the mortgage journey, but don’t worry, here are the answers to some of the top questions we get asked about mortgage insurance.

Types of Mortgages in BC

Mortgages across Canada are generally classified in one of two ways: High Ratio Mortgages, that require less than 20% of the purchase price as a down payment; or Conventional Mortgages, that require at least 20% of the purchase price as a down payment. Depending on what category you, as the borrower, qualify for, different rates may be available to you.

Insured and Conventional Mortgages

Insured Mortgages. An insured mortgage (also known as a high-ratio mortgage) is a type of mortgage that is covered by mortgage default insurance. This type of mortgage serves to protect the mortgage lender in case of default. There are two requirements to be deemed an insured mortgage. First, the value of the home being purchased must be less than $1,000,000, and second, the down payment must be less than 20%.

Conventional Mortgages. A conventional or uninsurable mortgage is a type of mortgage that may not be insured against default or foreclosure. Anything that is not qualified as an insured mortgage is considered to be an uninsured mortgage.

Lenders can offer mortgages for up to 80% of the purchase price or its appraised value (also known as the Loan-to-Value Ratio), whichever is lower, without the requirement for mortgage default insurance. This type of mortgage is generally referred to as a conventional mortgage.

When is Mortgage Insurance Needed?

Canadian law states that if any mortgage has a Loan-to-Value (LTV) that is greater than 80%, it is automatically required to be an insured mortgage.

In other words, any mortgage that has less than a 20% down payment is automatically an insured mortgage. It may also be applied for unique situations, such as if the property in consideration is located in a remote location or if the borrower is qualifying under a special program considered a higher risk.

Who pays for the Mortgage Insurance?

The mortgage default insurance premium is paid by the borrower(s), you, to the insurance provider through fees collected by the lender. The lender will add the premium to the principal amount of the mortgage loan and will be repaid over the same amortization period. On your closing date, the lender will pay the insurer by deducting any applicable sales tax and the premium from the principal amount advanced.

Loan-to-Value	Premium on Total Loan	Premium on Increase to Loan Amount for Portability
Up to and including 80%	2.40%	6.05%
Up to and including 85%	2.80%	6.20%
Up to and including 90%	3.10%	6.25%
Up to and including 95%	4.00%	6.30%

Source: https://www.cmhc-schl.gc.ca/

Example of a premium calculation* for a new home purchase:

Mortgage Loan Amount $750,000

Loan to Value Ratio 80%

Premium on Total Loan Amount (%) 2.40%

Premium Payable 2.40% x $750,000 = $18,000

*Table and premium example for illustrative purposes only.

What help is available to increase my down payment?

For first-time buyers, saving a down payment can be the hardest part of buying a home. The Federal Government offers first time home buyer programs to make this task a little easier.

Home Buyers Plan (HBP): Allows you to withdraw funds from your Registered Retirement Savings Plans (RRSPs) to buy a qualifying home for yourself. The HBP allows you to withdraw from your RRSP and pay back the withdrawn funds within a 15-year period. Your RRSP issuer will not withhold tax on withdrawn amounts of $35,000 or less

What is a pre-approval?

A pre-approved mortgage lets you know how much you can afford, what your interest rate will be and what your monthly mortgage payments will look like. Getting pre-approved can help you narrow your search down to a specific home type, size or neighborhood. Please contact us to speak with a mortgage specialist about getting pre-approved or simple apply online for a free pre-approval.

If you have less than 20% saved for a down payment, you’ll probably have to get mortgage loan insurance. It protects banks and other lenders against the risk of mortgage default . Insurance premiums on mortgage loans are calculated as a percentage of your total loan amount. They’re based on factors including the size and source of your down payment. In general, the smaller the down payment is, the higher the insurance premiums will be.

How do I qualify for Mortgage insurance?

To be eligible for mortgage default insurance, you will need to qualify for your lender's regular lending qualifications, as well as the underwriting standards of your mortgage insurer.

If you have questions about your eligibility requirements, book an appointment with one of CSCU's Mortgage Specialists to discuss all your mortgage options.

What are the Benefits to Insured Mortgages?

More mortgage options

With mortgage insurance, lenders can accept mortgages with smaller down payments — so it helps make mortgages available to more people.

This type of insurance coverage allows for First Time Home Buyers to apply for a mortgage with as little as a 5% down payment.

Gets you into a home quicker.

Instead of spending months trying to save up for a down payment, Insured Mortgages allow you to get into your home quicker by putting less money down.

In a highly competitive housing market like we’re currently experiencing, an Insured Mortgage can enable buyers to enter the market and begin building equity sooner, while also taking advantage of relatively low interest rates.

A more secure mortgage option.

The additional security of default insurance allows lenders to offer lower interest rates or better mortgage options, despite the lower amount of down payment required. This savings at the lender level can be passed on to the homebuyer and result in monthly mortgage savings.

Stabilized Housing Market.

During times of economic uncertainty, such as an economic recession or global pandemic, it can be difficult for individuals to focus on saving for a down payment.

Mortgage Insurance helps ensure that ample mortgage funding is available during these difficult times, creating a more balanced, stabilized market for all.

Insured Mortgage Key Takeaways

• Insured Mortgages are great for First Time Home Buyers as it provides an option to purchase a home for with as little as 5% down payment, and allows people to buy a home sooner than they may have thought possible.
• Mortgage Insurance is required by law if using less than 20% down payment.
• Mortgage Insurance is required by law if using less than 20% down payment.
• Government programs and incentives are available to First Time Buyers.

Securing your first mortgage in BC can seem intimidating - but it doesn’t need to be. At CSCU, we're here to help make the process as simple as possible for you – after all, we're for people, not profit. Our mortgage specialists will help guide you through the process with step-by-step instructions and expert advice along the way.

Thinking of buying a home in the Greater Vancouver Area? Book an appointment with our Mortgage Specialists