What is mortgage default insurance?

In Canada, mortgage default insurance, sometimes referred to as CMHC insurance, is designed to protect lenders in the event of a borrower defaulting on their mortgage. While it safeguards the lender, it also benefits buyers by allowing them to purchase a home with a smaller down payment.

1. What Is Mortgage Default Insurance?

Mortgage default insurance is required by law when a buyer’s down payment is less than 20% of the home’s purchase price. This type of coverage helps make homeownership more accessible, as it allows borrowers to qualify with a smaller down payment and often benefit from lower interest rates than those offered on uninsured (conventional) mortgages.

2. Who Provides Mortgage Insurance in Canada?

Three main insurers provide this type of coverage:

• Canada Mortgage and Housing Corporation (CMHC) – government-backed
• Sagen™ (formerly Genworth Canada)
• Canada Guaranty™

Each insurer has slightly different programs and qualification criteria, but their premium rates are the same.

3. When Is Mortgage Insurance Required?

Anytime borrowers have less than a 20% down payment, mortgage default insurance is required.

4. How are Premiums Calculated?

Mortgage insurance premiums are calculated as a percentage of your total mortgage amount (not the purchase price) and are determined by the size of your down payment. The smaller the down payment, the higher the premium rate.

• Down Payment: 5.00-9.99% = Premium: 4.00-4.20%
• Down Payment: 10.00-14.99% = Premium: 3.10-3.30%
• Down Payment: 15.00-19.99% = Premium: 2.80-3.00%

5. How Is the Premium Paid?

You have two options when it comes to paying your mortgage insurance premium:

• Add it to your mortgage: This is what most buyers do. The premium gets added to your total mortgage amount, which means your monthly payment will go up slightly, but you don’t have to pay anything out of pocket at closing.
• Pay it upfront: You can choose to pay the full premium when your mortgage closes, but this is far less common.

6. Benefits of Mortgage Insurance

Mortgage insurance often gets a bad reputation, but it actually makes homeownership possible for more Canadians. Here’s how it helps:

• Lower down payment requirements: You can buy a home with as little as 5% down, instead of waiting years to save 20%.
• Access to lower interest rates: Because the lender’s risk is protected, insured mortgages often come with better rates.
• Easier entry into the market: It’s a great option for first-time buyers or anyone who hasn’t built up a large savings cushion yet to get into the housing market.

7. Estimating Your Premium

Want to know what your premium might look like? Check the My Mortgage Toolbox app, where you can plug in your purchase price and down payment to get an estimate.

Understanding how mortgage insurance works helps you plan your budget confidently and make informed decisions about your financing options.