CMHC Mortgage Insurance
If your down payment is less than 20% of the purchase price, your mortgage is classified as a high-ratio mortgage, and Canadian law requires you to purchase mortgage default insurance. This is one of the most significant hidden costs of buying a home with a small down payment, and it is essential that you understand how it works before you commit to a purchase price.
What Is Mortgage Default Insurance?
Section titled “What Is Mortgage Default Insurance?”Mortgage default insurance protects the lender — not you — in case you stop making your mortgage payments and default on the loan. Despite the fact that it protects the lender, you are the one who pays the premium. This is a federal legal requirement, not something your lender decided to charge you.
The rationale behind this system is straightforward: lenders are taking on more risk when borrowers put down less than 20%. The insurance reduces the lender’s risk, which in turn allows them to offer mortgages to buyers who might not otherwise qualify. Without this system, most first-time buyers would need a full 20% down payment to get a mortgage at all.
The insurance premium is a one-time fee, but it is substantial. On a typical first-time buyer purchase, it can range from roughly $8,000 to over $30,000 depending on your purchase price and down payment amount.
The Three Mortgage Insurers in Canada
Section titled “The Three Mortgage Insurers in Canada”There are three companies authorized to provide mortgage default insurance in Canada:
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CMHC (Canada Mortgage and Housing Corporation) — A federal Crown corporation and the largest mortgage insurer. CMHC is the most well-known and often used as a shorthand for all mortgage insurance in Canada, even when another insurer is involved.
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Sagen (formerly Genworth Canada) — A private-sector insurer that provides the same coverage as CMHC. Sagen was known as Genworth Canada until 2021.
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Canada Guaranty — Another private-sector insurer offering mortgage default insurance to Canadian lenders.
Your lender chooses which insurer to use — you do not get to pick. The good news is that premium rates are virtually identical across all three providers, so the choice of insurer does not meaningfully affect your costs. Each insurer has slightly different underwriting guidelines for edge cases, but for most straightforward first-time buyer purchases, the experience is the same regardless of which insurer your lender uses.
Premium Rates
Section titled “Premium Rates”The insurance premium is calculated as a percentage of the mortgage amount (not the purchase price). The rate depends on the size of your down payment relative to the purchase price:
| Down Payment Percentage | Insurance Premium (% of Mortgage Amount) |
|---|---|
| 5.00% to 9.99% | 4.00% |
| 10.00% to 14.99% | 3.10% |
| 15.00% to 19.99% | 2.80% |
| 20.00% or more | Not required |
Notice the significant jump between the 5% tier (4.00% premium) and the 10% tier (3.10% premium). This 0.9 percentage point difference can translate to thousands of dollars in savings, making the stretch from 5% to 10% down one of the most cost-effective moves a first-time buyer can make.
How the Premium Is Added to Your Mortgage
Section titled “How the Premium Is Added to Your Mortgage”In most cases, the mortgage insurance premium is added directly to your mortgage principal. You do not need to write a cheque for it at closing. Instead, your mortgage balance increases by the amount of the premium, and you pay it off gradually along with the rest of your mortgage.
Here is a detailed example to show exactly how this works:
Worked Example: $500,000 Home with 5% Down
Section titled “Worked Example: $500,000 Home with 5% Down”- Purchase price: $500,000
- Down payment: $500,000 x 5% = $25,000
- Base mortgage amount: $500,000 - $25,000 = $475,000
- Insurance premium: $475,000 x 4.00% = $19,000
- Total mortgage (including insurance): $475,000 + $19,000 = $494,000
You are now paying interest on $494,000 instead of $475,000. At a 5% interest rate over a 25-year amortization, that $19,000 premium actually costs you approximately $33,000 in total when you include the interest charged on the premium itself over the life of the mortgage.
Worked Example: $500,000 Home with 10% Down
Section titled “Worked Example: $500,000 Home with 10% Down”- Purchase price: $500,000
- Down payment: $500,000 x 10% = $50,000
- Base mortgage amount: $500,000 - $50,000 = $450,000
- Insurance premium: $450,000 x 3.10% = $13,950
- Total mortgage (including insurance): $450,000 + $13,950 = $463,950
By doubling your down payment from $25,000 to $50,000, you reduced your insurance premium by over $5,000 and your total mortgage by more than $30,000.
Worked Example: $500,000 Home with 20% Down
Section titled “Worked Example: $500,000 Home with 20% Down”- Purchase price: $500,000
- Down payment: $500,000 x 20% = $100,000
- Base mortgage amount: $500,000 - $100,000 = $400,000
- Insurance premium: $0
- Total mortgage: $400,000
No insurance is required, and your mortgage is $94,000 lower than the 5% down scenario. The trade-off is that you needed $100,000 in savings instead of $25,000.
Provincial Sales Tax on Insurance Premiums
Section titled “Provincial Sales Tax on Insurance Premiums”In some provinces, you must also pay provincial sales tax (PST) on the mortgage insurance premium, and this amount is due at closing — it cannot be added to your mortgage. This catches many first-time buyers off guard.
The provinces that charge PST on mortgage insurance premiums include Ontario (8%), Quebec (9.975%), and Saskatchewan (6%). In Ontario, for example, a $19,000 insurance premium would trigger $1,520 in PST that you must pay out of pocket at closing.
Make sure you budget for this additional cost when calculating your closing expenses.
Can You Avoid Mortgage Insurance?
Section titled “Can You Avoid Mortgage Insurance?”The only way to avoid mortgage insurance entirely is to make a down payment of 20% or more. There is no negotiation, no exemption, and no alternative. If your down payment is less than 20%, insurance is mandatory.
Some buyers explore creative strategies like receiving a larger gift from family, withdrawing from both an FHSA and RRSP under the HBP, or combining multiple savings sources to reach the 20% threshold. If you are close to 20%, it is worth doing the math to see whether the effort of saving the additional amount is worth the insurance premium you would avoid.
However, waiting to save 20% down is not always the right call. In a rising market, the home price appreciation you miss while saving could outweigh the insurance cost. This is a calculation that depends on your personal circumstances, your local market, and how quickly you can save.