CMHC mortgage insurance: what it costs and when you need it

Mortgage default insurance is required when your down payment is less than 20% of the price. It protects the lender if you stop paying, but you are the one who pays the premium. CMHC, Sagen and Canada Guaranty are the insurers in Canada.

The short version: the premium is 2.80% to 4.00% of your loan depending on your down payment. It is usually added to your mortgage, and under the current rules, the purchase price must be below $1.5 million to qualify for insurance.

How much the premium costs

The premium is a percentage of the loan, and it rises as your down payment shrinks. According to CMHC:

• 5% to 9.99% down: 4.00%.
• 10% to 14.99% down: 3.10%.
• 15% to 19.99% down: 2.80%.
• A 30-year amortization adds a 0.20% surcharge.
• Non-traditional down payment (for example, a borrowed down payment, in limited cases with 5% to 9.99% down): 4.50%.

Most borrowers add the premium to the mortgage instead of paying it up front, so you also pay interest on it. The premium is not a tax and does not renew: you pay it once for the life of the insured mortgage, and some lenders let you transfer it if you move.

In some provinces, including Ontario and Québec, provincial sales tax on the premium cannot be added to the mortgage and is due in cash at closing.

Example: a $600,000 home

• 5% down ($30,000): loan $570,000, premium 4.00% = $22,800, new mortgage $592,800.
• 10% down ($60,000): loan $540,000, premium 3.10% = $16,740, new mortgage $556,740.
• 20% down ($120,000): no insurance.

In Ontario, sales tax of 8% on the $16,740 premium is about $1,340, paid in cash at closing.

What it covers, and what it does not

Insurance protects the lender, not you. If you default and the home sells for less than you owe, the insurer pays the lender, but you still owe the debt. Mortgage default insurance is not life or disability insurance, which pay your family or you.

Who qualifies

CMHC requires the purchase price to be below $1.5 million. Borrowers must meet the lender's rules, including the debt-service limits (GDS 39%, TDS 44%) and the stress test, and usually need a credit score that the lender accepts. For some programs, a minimum score of 600 applies.

Is it worth it?

The insurance often costs less than waiting years to save a full 20%, especially in a rising market, and it lets you buy sooner. But compare the premium with the price growth you might miss. The premium is also interest-bearing, so a $17,000 premium costs more than $17,000 over 25 years.

Ways to reduce the cost

• Put down a bit more to reach the next tier (10% or 15%).
• Choose a 25-year amortization if your budget allows, to avoid the surcharge.
• Ask your lender whether insurance can be ported to a new home.

Rates are set by the insurers and can change, so confirm the current figures with your lender.

Sources: CMHC: premium information, CMHC: general requirements.