Mortgage default insurance, also called CMHC Insurance, is mandatory in Canada for residential home purchases with down payments between the minimum down payment (5%) and 19.99%. Down payments of 20% or more do not require insurance. Mortgage default insurance exists to protect lenders should you stop making mortgage payments and default on your loan.
The amount of mortgage default insurance is directly related to your down payment. Your insurance premium depends on the size of your down payment as a percentage of your total home purchase price.
|Down Payment||5% - 9.99%||10% - 14.99%||15% - 19.99%||20%+|
The only way to lower the amount of insurance premium you’ll pay is to increase your down payment.
Your insurance premium is rolled into your mortgage amount, not paid off as a monthly bill or a lump sum like closing costs and legal fees. For example, if you have a mortgage for your home of $285,000 and your insurance is $11,400, you’d need to borrow $296,400 from your lender.
Although CMHC insurance is rolled into your mortgage and paid off over the duration of your loan, there is one cost you have to pay for up-front in cash.
If you live in Saskatchewan, Manitoba, Ontario, or Quebec, you need to pay the provincial sales tax (PST) on your CMHC insurance on closing day.
You are buying a $400,000 home in Ontario and you have $40,000 to put down.
$40,000 = 10% down payment
CMHC insurance: 3.1% of mortgage amount with 10% down payment
Total mortgage amount: $400,000 - $40,000 = $360,000
CMHC insurance = $360,000 x 3.1% = $11,160
Ontario PST on CMHC amount = $11,160 x 8% = $893
There are three providers of mortgage default insurance in Canada: The Canada Mortgage and Housing Corporation, Genworth Financial, and Canada Guaranty. The insurance rates are the same for all three providers.