Does mortgage insurance protect me as the borrower?

No. Mortgage default insurance protects the lender if you default. It does not make your payments or pay out to your family. Optional mortgage life or disability insurance are separate products that protect the borrower's household.

When is mortgage insurance required?

It is required whenever your down payment is less than 20% of the purchase price, making the mortgage high-ratio. With 20% or more down, the mortgage is conventional and no default insurance is needed.

How much does mortgage insurance cost?

The premium is a percentage of the loan that increases as your down payment shrinks, ranging roughly from about 2.8% to 4% of the mortgage. It is usually added to the loan and repaid over the amortization.

Mortgage Glossary

What is Mortgage Insurance?

Mortgage insurance, more precisely mortgage default insurance, protects the lender if a borrower fails to repay the loan. It is required in Canada when the down payment is less than 20% of the purchase price. The borrower pays a one-time premium, provided by CMHC, Sagen, or Canada Guaranty, even though the coverage benefits the lender.

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Quick answer

Also known as: mortgage default insurance, CMHC insurance, high-ratio insurance

Key points

Protects the lender, not the borrower, if the loan defaults.
Mandatory when the down payment is under 20%.
Provided by CMHC, Sagen, or Canada Guaranty.
The premium rises as the down payment falls.
Usually added to the mortgage rather than paid in cash.
Different from optional mortgage life or disability insurance.

Mortgage Insurance explained

Mortgage default insurance protects a lender against losses if a borrower defaults and the home is sold for less than the outstanding balance. In Canada it is mandatory on high-ratio mortgages, those with a down payment under 20%. The three providers are CMHC (a federal Crown corporation), Sagen, and Canada Guaranty. The borrower pays the premium, but the protection is for the lender, not the homeowner.

The premium is calculated as a percentage of the loan and rises as the down payment shrinks. It is usually added to the mortgage and repaid over time rather than paid in cash. This insurance should not be confused with mortgage life or disability insurance, which are optional products that pay out to the borrower's family or cover payments if the borrower dies or is unable to work.

What a Mortgage Insurance is for

Mortgage default insurance exists to let lenders safely extend high-ratio loans. By covering the lender's potential shortfall, it removes much of the risk of lending to buyers with small down payments, which keeps homeownership accessible. It also supports stability in the housing finance system by ensuring lenders are protected on the riskiest loans.

How it can help you

For the borrower, default insurance is what makes buying with as little as 5% down possible, and because the lender is protected, insured mortgages often come with competitive rates. Understanding the premium helps you budget the true cost of a low down payment. When comparing insured options, Lenderoo shops 40+ lenders for free so you can find a strong rate on a high-ratio purchase.

When it comes up

A buyer putting 10% down on a $450,000 home needs mortgage default insurance to proceed. The premium is added to their mortgage, letting them buy now rather than waiting to save 20%. Because the loan is insured, the lender offers a competitive rate, partly offsetting the cost of the premium over the years.

Example: How the premium is added

You buy a $450,000 home with 10% down, or $45,000, leaving a $405,000 mortgage at a 90% loan-to-value ratio.

At that ratio the default-insurance premium is roughly 3.1% of the loan, about $12,555. Rather than paying it in cash, you add it to the mortgage, financing about $417,555. The premium is then repaid gradually as part of your regular payments.