How Does Mortgage Default Insurance Work?
What You Should Know
- If your down payment is less than 20%, you'll need to pay mortgage default insurance, which will protect your lender if you default on your mortgage.
- The insurance premium is a one-time cost that is based on your total loan amount, ranging from 0.60% to 4.00%.
- There are qualification requirements, such as a credit score of at least 600, a maximum amortization of 25 years, and a maximum purchase price of $1 million.
- The main mortgage default insurance provider in Canada is the CMHC (Canada Mortgage and Housing Corporation), with Canada Guaranty and Sagen being private alternatives.
What Is Mortgage Default Insurance?
In Canada, mortgages with a down payment of less than 20% are required to have mortgage default insurance. This insurance, sometimes called “CMHC insurance,” “mortgage loan insurance,” or even just “mortgage insurance,” can affect your mortgage’s cost and eligibility requirements.
Mortgage default insurance covers your mortgage lender should you default on your mortgage. If you cannot repay your mortgage, then mortgage default insurance protects your lender from losses. Mortgage default insurance does not protect you or help you make mortgage payments.
Mortgage Default Insurance Providers in Canada
The three main mortgage default insurance providers in Canada are:
Canada Guaranty and Sagen are private companies, while the CMHC is a Crown Corporation owned by the federal government. CMHC insurance is the most common type of mortgage default insurance that you’ll see in Canada.
% of Mortgages That Are Insured
While mortgage default insurance might bring up talk about the Canada Mortgage and Housing Corporation (CMHC), the federal Crown corporation that guarantees a large chunk of mortgages in Canada, it’s important to note that there are other mortgage default insurance providers available.
Source: Sagen 2022 Annual Report
Private-insurers Sagen and Canada Guaranty insure the majority of insured mortgages in Canada, with Sagen being the largest mortgage insurer in Canada with 37% market share in 2022.
As a borrower, you might not notice much of a difference between these insurance providers. The requirements, and premium rates, are currently the same between them.
Source: Sagen 2022 Annual Report
When Is Mortgage Insurance Required?
The Government of Canada, through the Office of the Superintendent of Financial Institutions (OSFI), requires mortgages with a down payment of less than 20% to have mortgage default insurance. The low down payment means there is a greater risk should the borrower not be able to repay their loan. These types of loans with a loan-to-value above 80% are also called high-ratio mortgages.
The minimum down payment required in Canada is 5% of the purchase price, although this requirement can vary depending on the mortgage and property type. For a typical mortgage, if you’re looking to make a down payment of less than 20%, you will likely need to pay for mortgage default insurance. With an insured mortgage, you can make a down payment down payment of as little as 5%, depending on the purchase price. This helps those who have trouble saving up for a down payment and for those who need down payment assistance.
The table below shows the minimum down payment required based on the home’s purchase price for an insured mortgage in Canada.
Minimum Down Payment by Purchase Price
| $500,000 or less | Up to $1 million | Over $1 million | |
|---|---|---|---|
| Minimum Down Payment | 5% | 5% for the first $500,000 10% for the remaining amount | Not eligible for mortgage insurance |
How Does Mortgage Default Insurance Work?
If you need mortgage default insurance, your mortgage lender will arrange this for you. The most common mortgage insurance provider is the Canada Mortgage and Housing Corporation (CMHC), which is a federal Crown Corporation. However, your lender may also choose to go with a private mortgage default insurance provider. Different providers may have different requirements to be eligible for coverage. You may ask your lender for a preferred insurer if you wish.
When it’s time to pay, your lender will pay the mortgage default insurance premiums to the insurer. The lender will usually pass this cost to you by
- Adding it to your regular mortgage payments, or
- By having you pay it upfront as a lump-sum amount.
If you do add the premium to your mortgage balance, this means that you’ll be paying mortgage interest on the premium for the life of your mortgage. It’s important to note that the cost of mortgage default insurance is non-refundable. This means that if you are required to pay for CMHC insurance but then fully pay off your insured mortgage in a few years, you won’t be able to get a portion of the premiums paid back.
Mortgage Default Insurance Eligibility Requirements
You’ll need to meet some requirements to qualify for mortgage default insurance. These requirements may also vary by insurer. For CMHC insurance, the requirements are:
- Maximum purchase price of $1 million
- Credit score of at least 600
- Maximum gross debt service ratio (GDS) of 35%
- Maximum total debt service ratio (TDS) of 42%
- Maximum mortgage loan amortization of 25 years, or up to 30-years for first-time homebuyers starting Aug 1, 2024.
- The down payment cannot be borrowed
To read about the eligibility requirements in detail, visit our page about CMHC mortgage rules.
How Much Does Mortgage Insurance Cost?
The mortgage insurance rates offered by different providers are listed below. You could alternatively use WOWA’s mortgage insurance calculator to calculate your premiums.
CMHC Insurance Rates
CMHC mortgage loan premiums can be as little as 0.60% for mortgages with an LTV of 65% or less; or as high as 4.00% of the total loan amount for LTVs of 90.01% to 95%. This means that if you make a down payment of 5%, you'll need to pay 4% of the mortgage amount for CMHC insurance!
The premium rates chart below shows the current CMHC insurance rates as of June 2024.
CMHC Mortgage Loan Insurance Premium
| Loan-to-Value (LTV) | Down Payment | Premium (% of Loan) | Premium on Increase to Loan Amount for Portability |
|---|---|---|---|
| 90.01% to 95% | 5% to 9.99% | 4.00% | 6.30% |
| 85.01% to 90% | 10% to 14.99% | 3.10% | 6.25% |
| 80.01% to 85% | 15% to 19.99% | 2.80% | 6.20% |
| 75.01% to 80% | 20% to 24.99% | 2.40% | 6.05% |
| 65.01% to 75% | 25% to 34.99% | 1.70% | 5.90% |
| 65% or less | 35% or more | 0.60% | 0.60% |
Updated June 2024
Source: CMHC
The table below shows an example of the required down payment and the CMHC premium cost for a $500,000 insured mortgage, based on the upper end of each premium rate range.
Example of CMHC Premiums ($500,000 Mortgage)
| Loan-to-Value (LTV) | Required Down Payment | Premium |
|---|---|---|
| 90.01% to 95% | $25,000 | $19,000 |
| 85.01% to 90% | $50,000 | $13,950 |
| 80.01% to 85% | $75,000 | $11,900 |
| 75.01% to 80% | $100,000 | $9,600 |
| 65.01% to 75% | $125,000 | $6,375 |
| 65% or less | $175,000 | $2,250 |
Ontario, Quebec, and Saskatchewan borrowers must pay provincial sales tax on their CMHC insurance premiums. This sales tax will need to be paid upfront and cannot be added to your regular mortgage payment.
Sagen Insurance Rates
Sagen (formerly Genworth Canada) mortgage insurance rates for standard mortgages are the same as CMHC insurance rates. Sagen also offers mortgage insurance for self-employed mortgages, second mortgages, investment properties, and even mortgages with a borrowed down payment! Sagen mortgage insurance premiums for these alternative mortgage types are shown below, with rates current as of June 2024.
Sagen Alternative Mortgage Insurance Rates
| Loan-to-Value (LTV) | Second Mortgage Premium (% of Loan) | Vacation Homes Premium (% of Loan) | Self-Employed Premium (% of Loan) | Investment Property Premium (% of Loan) | Borrowed Down Payment (% of Loan) |
|---|---|---|---|---|---|
| 90.01% to 95% | 4.00% | - | - | - | 4.50% |
| 85.01% to 90% | 4.00% | 4.35% | 5.85% | - | - |
| 80.01% to 85% | 2.80% | 3.50% | 3.75% | - | - |
| 75.01% to 80% | 2.40% | 3.15% | 3.30% | 2.90% | - |
| 65.01% to 75% | 1.70% | 2.55% | 2.60% | 2.00% | - |
| 65% or less | 0.60% | 1.45% | 1.50% | 1.45% | - |
Updated June 2024
Source: Sagen
*Percentage of Combined 1st and 2nd Loan Amounts
Canada Guaranty Insurance Rates
Canada Guaranty is a private mortgage insurer that provides mortgage default insurance for conventional mortgages, rental property mortgages, second mortgages, and other mortgage types. The premium rates for standard mortgages are the same as CMHC. The premium rates for alternative mortgages are listed below.
Canada Guaranty Alternative Mortgage Insurance Rates
| Loan-to-Value (LTV) | Low Doc Advantage Premium (% of Loan) | Rental Advantage Premium (% of Loan) |
|---|---|---|
| 85.01% to 90% | 5.85% | - |
| 80.01% to 85% | 3.75% | - |
| 75.01% to 80% | 3.30% | 2.90% |
| 65.01% to 75% | 2.60% | 2.00% |
| 65% or less | 1.50% | 1.45% |
Updated June 2024
Source: Canada Guaranty
Mortgage Life Insurance
Mortgage life insurance, or mortgage protection insurance, is used to cover the borrower should they be unable to make their mortgage payments. This will protect you should you lose your job, get into an accident, become disabled, have a critical illness, or pass away. You can learn more, compare mortgage life insurance providers, and view premium costs on our page about mortgage protection insurance in Canada.
Advantages and Disadvantages of Mortgage Default Insurance
Advantages
- Default insurance allows you to make a smaller down payment, making homeownership more accessible to borrowers.
- Since the mortgage is insured, it lowers the risk to lenders, due to which they approve borrowers they wouldn’t have otherwise, increasing the chances of approval for many buyers.
- Mortgage lenders tend to offer lower interest rates for high-ratio-insured mortgages due to the lower risk, which may reduce the overall cost of borrowing despite the added cost of insurance premiums.
- The premium payments are usually flexible, meaning you could either pay the entire premium upfront or add it to your monthly mortgage payments.
Disadvantages
- The main disadvantage of mortgage default insurance is the cost of insurance premiums. While this is an upfront cost that can be amortized over the life of your mortgage loan, it is still an extra expense that can be avoided by simply making a larger down payment.
- You must also pay an additional provincial sales tax on the insurance premiums in some provinces.
- The mortgage approval process will include an additional step where you will need to get approval from the insurer.
- Mortgage default insurance isn’t available for homes priced over $1M. The average home prices in major cities such as Toronto and Vancouver are over $1M, which means buyers cannot get mortgage insurance when buying an average home in these cities. They will have to make a downpayment of at least 20% to buy an average home in these cities.
- Being a one-time fee would also make CMHC premiums relatively more expensive if you plan to pay off your mortgage soon, such as if you’re looking to sell your home in the next few years. This can be avoided with mortgage porting if you’re getting another mortgage, but may come with additional costs.
Mortgage Insurance in Canada vs USA
Mortgage loan insurance premiums in Canada are a one-time upfront cost, which you must either pay at once or add to your monthly mortgage payment. That's different from private mortgage insurance (PMI) premiums in the United States, which are an annual premium cost. The amount that you’ll pay and the premium rate you’ll be charged are based on the loan-to-value (LTV) ratio of the loan, along with the total loan amount being insured.
The cost of mortgage default insurance in Canada is non-refundable. This means that if you decide to pay off your insured mortgage early, you won’t get any refund on the portion of the premiums paid for the remaining amortization period. That differs from the U.S., where PMI premiums can be removed after reaching an LTV ratio of 80% or less.
Disclaimer:
- Any analysis or commentary reflects the opinions of WOWA.ca analysts and should not be considered financial advice. Please consult a licensed professional before making any decisions.
- The calculators and content on this page are for general information only. WOWA does not guarantee the accuracy and is not responsible for any consequences of using the calculator.
- Financial institutions and brokerages may compensate us for connecting customers to them through payments for advertisements, clicks, and leads.
- Interest rates are sourced from financial institutions' websites or provided to us directly. Real estate data is sourced from the Canadian Real Estate Association (CREA) and regional boards' websites and documents.