Understanding CMHC and mortgage default insurance

Who needs it

Any mortgage with less than twenty percent down on an owner-occupied property under the insured price ceiling requires default insurance. There are three providers in Canada: CMHC, Sagen, and Canada Guaranty. Your lender selects the insurer; the guidelines are broadly similar.

What it costs

The premium is a percentage of the mortgage amount, and the percentage rises as the down payment falls. It is normally added to the mortgage balance rather than paid in cash, so it is financed over the amortization. In Ontario, provincial sales tax on the premium is payable at closing and cannot be financed.

• Premium scales with loan-to-value: less down means a higher rate
• Added to the balance, not paid upfront
• PST on the premium is a closing-day cash cost in Ontario

Why insured mortgages price better

Because the lender's risk is covered, insured mortgages generally carry lower rates than uninsured ones. It is a genuine oddity of the Canadian market: putting twenty percent down can leave you with a slightly higher rate than putting ten percent down and paying a premium.

Portability and the transferable premium

If you move and port your insured mortgage, the premium can often be carried over so you only pay on new money. That is a real saving people forget to ask about at their next purchase.

What insurance does not cover

It is not life insurance and it is not job loss protection. If you default, the insurer pays the lender and can pursue you for the shortfall. Mortgage life and disability coverage are separate products worth pricing independently.

Frequently asked questions

Can I avoid mortgage default insurance?

Yes, by putting twenty percent or more down. Compare that against the lower insured rate before assuming it is the cheaper path.

Is the premium refundable?

Not generally, though partial refunds exist for certain energy-efficient home programs and portability can reduce the cost on a future purchase.