What type of mortgage requires insurance because the down payment is less than 20%?

A mortgage that requires insurance when the down payment is less than 20% is referred to as a high-ratio mortgage. This type of mortgage generally involves borrowing a higher percentage of the property's purchase price, which means that the lender is taking on increased risk. To mitigate this risk, lenders typically require mortgage default insurance, providing a layer of protection in case the borrower defaults on the loan.

In Canada, this insurance is usually offered by institutions like Canada Mortgage and Housing Corporation (CMHC), and it helps to ensure that the lender can recover their funds even if the borrower fails to make payments. High-ratio mortgages are quite common among first-time homebuyers who may not have sufficient savings for a larger down payment, making them accessible to a wider range of individuals seeking to enter the housing market.

While other types of mortgages listed serve specific functions, they do not inherently involve the requirement for insurance linked to down payment thresholds. A conventional mortgage, for instance, typically involves a down payment of at least 20% and therefore does not require insurance.