Mortgage Default Insurance in Canada: What It Is, When You Pay It & How to Avoid It
🏠 What Is Mortgage Default Insurance—and Why Do You Pay It in Canada?
Buying a home in Canada comes with many costs, and one of the most misunderstood is mortgage default insurance. If you’re putting down less than 20%, you’re likely required to pay it—even though it protects the lender, not you.
In this guide, we’ll break down:
• What mortgage default insurance is
• Who has to pay it (and who doesn’t)
• How much it costs
• And how you can avoid or reduce it
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🔍 What Is Mortgage Default Insurance?
Mortgage default insurance protects the lender in case a borrower fails to make mortgage payments. It’s mandatory for high-ratio mortgages, where the down payment is less than 20% of the home’s purchase price.
While you pay the insurance premium, the coverage benefits the lender, not the borrower.
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🛡️ Why Does It Exist?
Lenders face more risk when a buyer puts less money down. Mortgage default insurance reduces that risk, enabling lenders to offer mortgages to buyers with lower down payments, often as low as 5%.
In short: it makes homeownership possible for more Canadians—but at a cost.
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🏢 Who Offers Mortgage Default Insurance in Canada?
There are three mortgage insurers in Canada:
1. CMHC – Canada Mortgage and Housing Corporation (government-backed)
2. Sagen (formerly Genworth)
3. Canada Guaranty
The lender, not the borrower, chooses the insurer. Rates are very similar across all three providers.
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💰 When Do You Have to Pay for It?
You’ll need mortgage insurance if:
• Your down payment is under 20%
• You’re using a federally regulated lender
• Your mortgage amortization is 25 years or less
You don’t need it if:
• You put 20% or more down
• You’re using a private or alternative lender
• The home costs over $1 million
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🧮 How Much Does Mortgage Insurance Cost?
It’s calculated as a percentage of your mortgage loan, then added to your mortgage.
Down Payment
Premium Rate
5% – 9.99%
4.00%
10% – 14.99%
3.10%
15% – 19.99%
2.80%
20%+
Not required
💡 Example:
Buying a $600,000 home with 5% down:
• Mortgage amount: $570,000
• Insurance premium (4%): $22,800
• New mortgage total: $592,800
That $22,800 is not paid upfront—it’s tacked onto your loan and repaid monthly, with interest.
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⏱️ When Is It Paid?
The premium is added to your total mortgage amount and repaid as part of your monthly payments.
📌 Note: In provinces like Ontario and Quebec, you must pay PST on the insurance upfront—it can’t be rolled into the mortgage.
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✅ Ways to Avoid or Reduce It
Want to skip paying mortgage default insurance? Here are 5 strategies:
1. Put 20% or More Down
The simplest way to avoid mortgage insurance.
2. Use a Gifted Down Payment
Family can gift you funds to help reach the 20% threshold.
3. Buy a Lower-Priced Home
Smaller price = smaller loan = easier to hit 20%.
4. Use a B-Lender or Private Lender
They often don’t require CMHC insurance but charge higher interest rates.
5. Use Equity from Another Property
For move-up buyers, equity can help bridge your down payment.
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🚫 Mortgage Insurance ≠ Mortgage Life Insurance
Mortgage default insurance protects the lender if you stop making payments.
Mortgage life insurance protects your family if you pass away.
They are two completely different products.
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📈 Is It Ever Worth Paying?
Yes—if it helps you buy a home sooner, before prices go even higher.
You might pay $20K in insurance to get into the market now, rather than waiting years to save 20% while prices keep rising.
Sometimes, it’s the cost of opportunity.
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🔁 Can You Transfer the Insurance?
Yes—if you move your mortgage to a new lender and the loan amount remains the same, most insurers allow you to port the insurance without paying again.
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🧠 Summary: Key Takeaways
• Mandatory if down payment < 20%
• You pay it, but it protects the lender
• Premium is rolled into your mortgage
• Avoid it by putting 20% down or using B-lenders
• May be worth it if it gets you into the market faster
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📞 Need Help Figuring It Out?
Whether you’re buying in Barrie, Vaughan, Pickering, Oshawa, or Bradford, I can calculate your insurance costs—or help you avoid them.
👉 Get a free mortgage strategy call at www.garrysidhu.ca
