Mortgage Default Insurance (CMHC Insurance) in Canada: What It Is, What It Costs and How to Avoid It

Mortgage default insurance, often called CMHC insurance after Canada Mortgage and Housing Corporation, the federal insurer, is insurance that a lender requires when you buy with less than 20% down. It makes a small down payment possible, but it costs thousands of dollars, usually added to the mortgage. This guide covers what it is, what it costs in dollars, and when and how you can avoid it. It is part of our mortgage types hub.

What mortgage default insurance is (and isn’t)

It protects the lender, not you. If you stop paying and the home is sold for less than you owe, the insurer covers the lender’s loss, and the insurer can then pursue you for the shortfall. You pay the premium, but the benefit goes to the lender. That makes it different from home insurance, and from mortgage life insurance, which pays off the mortgage if you die.

Why it exists. It lets lenders offer mortgages to buyers with less than 20% down without carrying the full default risk. For federally regulated lenders it isn’t optional: a mortgage for a purchase “must be insured if their LTV ratios are greater than 80 percent” under OSFI’s Guideline B-20.

When you need it

With less than 20% down you need mortgage loan insurance. The minimum down payment is 5% of the first $500,000 and 10% of the rest for homes under $1.5 million, and 20% at $1.5 million or more. The full eligibility rules, from the price cap to owner occupancy and credit requirements, are set out in the CMHC mortgage rules, and the minimum down payment calculator works out the minimum for a given price.

With 20% or more down you have a conventional mortgage and don’t pay a premium. Even so, the lender may insure some of those loans in bulk at its own cost, which is the difference between “insurable” and “uninsurable” mortgages explained in insured vs uninsured mortgages.

What it costs

The premium is a percentage of the mortgage amount, and the percentage rises with the loan-to-value ratio: the smaller your down payment, the higher the rate. On CMHC’s standard schedule for a 25-year amortization, the premium runs from 2.80% of the loan with 15% to 19.99% down to 4.00% with 5% to 9.99% down. A 30-year insured amortization adds 0.20 percentage points (who qualifies for 30 years). The full premium schedule, including the bands at 80% loan-to-value or less, is in the CMHC mortgage rules.

Premiums in dollars

On the $700,000 home, paying the minimum down payment instead of 20% means a premium of about $26,200 instead of finding $95,000 more in cash. To work out the premium for your own price and down payment, use the CMHC insurance calculator.

The premium costs interest too

The premium is normally added to the mortgage, so you pay interest on it for the whole amortization.

Provincial sales tax on the premium

The premium can be added to the mortgage, but in a few provinces provincial sales tax applies to it, and that tax has to be paid in cash at closing rather than borrowed. The guide to PST on mortgage default insurance lists the provinces, the rates and how the tax is collected.

CMHC vs Sagen vs Canada Guaranty

Three companies provide mortgage default insurance in Canada:

All three insure loans under the same federal rules for insured mortgages: the same price cap, amortization limits and stress test. Each sets its own premiums and underwriting guidelines within those rules. The lender chooses the insurer, not you. If one insurer declines a file, a lender or mortgage broker can sometimes submit it to another, since their guidelines on things like self-employed income or property type can differ. Self-employed borrowers with less than 20% down are covered in mortgages for the self-employed.

Porting, switching and refinancing an insured mortgage

Avoiding it, and whether it pays

The only way to avoid the premium on a purchase is a down payment of 20% or more. A larger down payment within the insured range also lowers the premium rate, since each band is cheaper than the one above it.

Avoiding it isn’t automatically cheaper, because insured mortgages often get lower interest rates than uninsured ones. The premium is usually larger than the rate saving, though:

Even with a lower rate, the insured borrower here pays more each month, because the premium added to the balance outweighs the rate discount. The real benefit of the insured route is needing less cash up front.

The bigger question is usually timing: whether to buy now with a smaller down payment and pay the premium, or keep saving to 20%. Waiting avoids the premium but means more months of rent and exposure to price changes in the meantime; which costs more depends on the local market. What is a conventional mortgage works through that decision.

Two ways to reduce the cost if you do need insurance:

• Energy-efficient homes. CMHC refunds 25% of the premium for CMHC-insured buyers of qualifying energy-efficient homes, or after qualifying energy-saving renovations; see the CMHC green home program.
• A bigger down payment band. Moving from just under 10% down to 10%, or from just under 15% to 15%, drops you into a cheaper premium band.

Related reading

• Insured vs Uninsured Mortgages
• CMHC Mortgage Rules
• CMHC Insurance Calculator
• Canada Mortgage Stress Test
• Closing Costs Calculator