Who the Insurance Protects
Mortgage default insurance protects the lender, not the borrower, in case you are unable to make your payments. It allows lenders to offer mortgages to buyers with smaller down payments while managing their own risk.
How the Premium Is Calculated
The premium is calculated as a percentage of your mortgage amount, and the percentage decreases as your down payment increases. Buyers putting down closer to 20 percent pay a lower premium than those putting down closer to 5 percent.
How You Pay the Premium
Most buyers add the premium to their mortgage balance rather than paying it upfront, which means you pay interest on it over the life of the loan. Provincial sales tax on the premium, where applicable, is typically due upfront.
Rules on Property Price and Amortization
Insured mortgages come with rules, including maximum purchase price limits and standard amortization periods, that differ from conventional mortgages with 20 percent or more down.
- Maximum insurable purchase price limits
- Standard amortization requirements
- Property must meet insurer criteria
Avoiding the Premium Entirely
The only way to avoid default insurance is to put down 20 percent or more, which is one reason many buyers work hard to reach that threshold even if it takes longer to save.
Frequently asked questions
- Does default insurance protect me if I lose my job?
- No, it protects the lender, though it does not directly protect you from losing your home.
- Can I pay the CMHC premium upfront instead of adding it to my mortgage?
- Yes, many lenders allow you to pay it upfront if you prefer not to finance it.
- Is default insurance required on all mortgages?
- No, only on mortgages with a down payment of less than 20 percent.