Uninsured mortgages (and bigger down payments) are becoming more common

By: Jessica Mach on March 26, 2018

The number of people applying for uninsured mortgages in Canada reached an eight-year high in January, according to data from the Office of the Superintendent of Financial Institutions (OSFI).

They now account for over half — 53% — of the home loans issued by Canada’s banks.

Meanwhile, insured mortgages fell in popularity, with lenders issuing 6.5% fewer of them than they did during the same period last year.

This is significant because, in Canada, getting mortgage default insurance isn’t a matter of personal choice.

By law, if the down payment on a home is worth less than 20% of the property value, you’re required to buy mortgage insurance from the Canada Mortgage and Housing Corporation (CMHC), which enables a lender to recoup their loan should you stop being able to make payments.

However, if your down payment is worth 20% or more of a home's value, or you’re buying a home worth $1-million or more, a lender will require you take out a mortgage without insurance.

Uninsured mortgages grew by 19% year-over-year in January, a substantial increase according to OSFI.

If more people are qualifying for insurance-free mortgages, that means that a greater proportion of homebuyers are now putting down down payments of 20% or more. Given that the average price of a detached house in Canada’s most populous cities, Toronto and Vancouver, regularly swing upwards of $1-million, this is by no means an easy thing to do: twenty percent of $1-million is $200,000.

The growing trend of bigger down payments suggests that people are delaying home-ownership in order to give themselves more time to save up. It may also be a sign that the country’s affluent are still taking a bigger share of the detached housing market.

With the combined median condo price in Toronto and Vancouver hovering around the $600,000 mark, the drop in insured mortgages could be an indication that more people are forgoing the dream of a single family home in favour of (comparably) cheaper housing: since OFSI introduced new “stress test” rules on Jan. 1, sales of condos have shot up, while detached homes sales have fallen, according to the Canadian Real Estate Association.