Key takeaways
- Mortgage default insurance is required when your down payment is under 20%
- Premiums range from 0.60% to 4.00% of the mortgage (4.50% with a non-traditional down payment)
- A 30-year amortization adds 0.20 percentage points to the premium
- Ontario (8%), Quebec (9%) and Saskatchewan (6%) charge sales tax on the premium, paid in cash
- Homes priced at $1.5 million or more cannot be insured, so you need 20% down
What is mortgage default insurance?
Mortgage default insurance protects the lender, not you, if you stop paying your mortgage. In Canada, it is required when your down payment is less than 20% of the price. Three companies provide it: the Canada Mortgage and Housing Corporation (CMHC), Sagen and Canada Guaranty. Your lender arranges it.
The minimum down payment is 5% of the first $500,000 and 10% of the part between $500,000 and $1.5 million. Homes priced at $1.5 million or more cannot be insured, so they need at least 20% down.
CMHC premium rates
| Loan-to-value (mortgage ÷ price) | Down payment | Premium on the mortgage |
|---|---|---|
| Up to 65% | 35% or more | 0.60% |
| 65.01% to 75% | 25% to 34.99% | 1.70% |
| 75.01% to 80% | 20% to 24.99% | 2.40% |
| 80.01% to 85% | 15% to 19.99% | 2.80% |
| 85.01% to 90% | 10% to 14.99% | 3.10% |
| 90.01% to 95% | 5% to 9.99% | 4.00% |
| 90.01% to 95% (non-traditional down payment) | 5% to 9.99% | 4.50% |
With 20% or more down, insurance is not required, although some lenders insure low-ratio mortgages and pay the premium themselves. For an amortization longer than 25 years, the premium is 0.20 percentage points higher.
Which provinces charge tax on the premium?
| Province | Sales tax on premium |
|---|---|
| Ontario | 8% |
| Quebec | 9% |
| Saskatchewan | 6% |
| All other provinces and territories | None |
CMHC confirms that only Quebec, Ontario and Saskatchewan apply provincial sales tax to the premium, and that this tax cannot be added to the loan. Your lawyer or notary collects it at closing with your other closing costs.
Worked example
You buy a $650,000 home in Ontario with $50,000 down.
- Minimum down payment: $25,000 + 10% of $150,000 = $40,000. You have enough.
- Mortgage: $600,000. Loan-to-value: 92.3%, so the premium is 4.00%.
- Premium: $24,000, added to the mortgage. New mortgage: $624,000.
- Ontario sales tax: 8% of $24,000 = $1,920 in cash at closing.
With a 30-year amortization the premium would be 4.20% ($25,200) and the tax $2,016. Raising your down payment to $65,000 (10%) would drop the premium to 3.10%.
Can you avoid or lower the premium?
The only way to avoid default insurance is a down payment of 20% or more. You can lower the premium by moving into a lower band: the premium rate drops at 10%, 15% and 20% down. Because the rate applies to the whole mortgage, a small extra down payment near a band edge can save thousands of dollars. For example, on a $500,000 home, going from 9% down to 10% down cuts the premium rate from 4.00% to 3.10%.
Gifts from close family can usually count toward your down payment if they come with a signed gift letter. Money in a First Home Savings Account (FHSA) or withdrawn under the Home Buyers’ Plan also counts. Borrowed money is a “non-traditional” down payment and costs more.
Next steps
- Add the tax to your full budget with the closing costs calculator.
- Check what you can afford with the mortgage affordability calculator.
- Compare buying with renting using the rent vs buy calculator.
- New to Canada with little credit history? Some insurers have programs for newcomers; ask your lender or mortgage broker.