Insurance required by Canadian law when a buyer makes a down payment of less than 20% of the purchase price. Provided by CMHC, Sagen, or Canada Guaranty, it protects the lender -- not the borrower -- against loss if the borrower defaults on the mortgage. The premium ranges from 2.8% to 4.0% of the mortgage amount depending on the size of the down payment, and is typically added to the mortgage balance and paid off over the life of the loan.
Why It Matters
Mortgage default insurance is what makes it possible for first-time buyers to enter the GTA market with as little as 5% down. On a $600,000 home with 5% down, the insurance premium is roughly $22,800, added to your mortgage. While it increases your total borrowing cost, it opens the door to homeownership years earlier than saving for a 20% down payment would. Insured mortgages also tend to qualify for slightly lower interest rates, partially offsetting the premium cost.
Real-World Example
You are a first-time buyer purchasing a $650,000 condo in North York with a 10% down payment of $65,000. Your mortgage amount is $585,000. At a 10% down payment, the CMHC insurance premium rate is 3.10%, which works out to $18,135. This premium is added to your mortgage balance, making your total mortgage $603,135. Your monthly payment increases by approximately $95 compared to what it would be without the insurance premium. However, insured mortgages often qualify for rates 10 to 20 basis points lower than uninsured mortgages, partially offsetting the premium cost.
Ontario & GTA Context
In Ontario, mortgage default insurance is required on all mortgages with less than 20% down on properties priced up to $1 million. For properties between $500,000 and $999,999, the minimum down payment is 5% on the first $500,000 and 10% on the remainder. Properties at $1 million or above are not eligible for mortgage default insurance and require a minimum 20% down payment. This is particularly relevant in the GTA, where many properties exceed the $1 million threshold, making the insurance unavailable and requiring larger down payments.
How It Works in Practice
Factor the CMHC insurance premium into your total cost of homeownership when comparing different down payment scenarios. A 15% down payment has a lower premium rate (2.80%) than 5% (4.00%), so putting a bit more down can save thousands. Use a CMHC premium calculator to compare the total cost at different down payment levels, and remember that the premium is amortized over the full mortgage term.
Common Questions
Can I avoid paying CMHC insurance?▾
Does CMHC insurance protect me as the buyer?▾
Is the CMHC insurance premium tax-deductible?▾
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