If you’re buying a home in Canada with a down payment under 20%, you will likely need mortgage default insurance (often called mortgage loan insurance or CMHC insurance). This insurance protects the lender if you stop making mortgage payments or otherwise breach the terms of your mortgage, and is required by most lenders when the loan-to-value ratio exceeds 80%.
Below is a clear explanation of how mortgage default insurance works, how premiums are calculated, who provides it in Canada, and practical tips for minimizing the cost.
What is mortgage default insurance (CMHC insurance)?
Mortgage default insurance covers the lender for losses if the borrower defaults on the mortgage. It is not personal life or disability insurance — those products are designed to pay down the mortgage balance for the borrower or their family if the borrower dies or becomes unable to work. Mortgage default insurance strictly protects the lender, which allows lenders to offer mortgages to buyers with smaller down payments.
Because it reduces lender risk, mortgage default insurance can make it easier to qualify for a mortgage and may help secure a more favorable interest rate. However, the borrower ultimately pays the insurance premium, either upfront or added to the mortgage principal. Note that properties valued at $1 million or more are generally not eligible for mortgage default insurance; such purchases require a down payment of at least 20% and must meet other lending criteria.
How much is mortgage default insurance in Canada?
The mortgage default insurance premium depends on your loan-to-value (LTV) ratio — the mortgage amount divided by the home’s purchase price (or appraised value, where applicable). For example, a 5% down payment on a purchase represents an LTV of 95%.
For insured mortgages (typically those with down payments under 20%), premiums range based on LTV. The following table shows the current premium rates applied to the mortgage amount for different loan-to-value bands.
| Loan-to-value | Mortgage insurance premium applied to mortgage amount |
|---|---|
| Up to and including 65%* | 0.60% |
| Up to and including 75%* | 1.70% |
| Up to and including 80%* | 2.40% |
| Up to and including 85% | 2.80% |
| Up to and including 90% | 3.10% |
| Up to and including 95% | 4.00% |
To illustrate: if you buy a home for $700,000 and put down $105,000 (15%), the mortgage amount is $595,000 and the LTV is 85%. The mortgage insurance premium for that LTV is 2.80% of $595,000, which equals $16,660.
Many buyers use a mortgage insurance calculator to test scenarios quickly, adjusting purchase price, down payment and mortgage amount to see how the premium changes. These calculators can also show applicable sales taxes on the premium, which some provinces apply and collect upfront as part of closing costs.
Which mortgage insurance calculator is best?
A good mortgage insurance calculator will display the insurance fee based on your down payment and mortgage amount and will consider provincial sales tax where applicable. Use a calculator that allows you to change the purchase price and down payment so you can compare how different down payment amounts affect the premium and monthly payments.
How to qualify for mortgage loan insurance
Mortgage default insurers set eligibility rules to ensure borrowers have a reasonable ability to repay. Typical requirements include:
- Maximum amortization of 25 years for insured high-ratio mortgages.
- A minimum down payment based on purchase price: 5% for homes under $500,000; for homes between $500,000 and $999,999, 5% of the first $500,000 plus 10% of the remainder. Homes $1 million or more are not eligible for default insurance.
- A credit score generally at or above roughly 680 (lenders may have additional underwriting criteria).
- A gross debt service (GDS) ratio typically under 35% and a total debt service (TDS) ratio under 42%.
- Proof that your down payment is not borrowed funds.
Meeting these conditions helps guarantee the mortgage insurer will approve coverage; lenders enforce these and may have additional requirements.
Mortgage default insurance providers in Canada
Three organizations offer mortgage default insurance in Canada: the Canada Mortgage and Housing Corporation (CMHC), and two private insurers—Sagen (formerly Genworth) and Canada Guaranty. While CMHC is a crown corporation with a public mandate to improve access to housing, all three insurers provide similar insurance products and follow equivalent premium rate schedules set for insured mortgages.
How do you pay mortgage default insurance?
The lender pays the mortgage insurer the premium and passes that cost on to the borrower. You usually have two options: pay the premium as a lump sum at closing or have the premium added to your mortgage principal. Many borrowers choose to add the premium to the mortgage balance, but doing so increases the loan amount and the interest paid over time, and it slows the growth of home equity.
To minimize total cost, consider increasing your down payment where possible. A larger down payment reduces the LTV, which lowers the insurance premium percentage and leads to smaller monthly payments and less interest over the loan term.
Related mortgage tools
- Mortgage affordability calculator
- Mortgage payment calculator
- Land transfer tax calculator
- Mortgage refinance calculator
- Mortgage renewal calculator
Understanding mortgage default insurance and how premiums are calculated helps you plan for closing costs and long-term mortgage expenses. Use calculators to test different down payment amounts and consider saving a larger down payment if you want to reduce or avoid mortgage default insurance altogether.