Fees & costs

Mortgage default insurance

Insurance the lender takes out (you pay the premium) when your down payment is under 20%. Provided by CMHC, Sagen, or Canada Guaranty. Protects the lender if you default — you do not get insurance proceeds.

This is the most misunderstood cost in Canadian home-buying. Default insurance protects the lender, not you — if you stop paying and the home sells for less than the balance, the insurer covers the lender's loss and then pursues you for it. It is not life or job-loss insurance.

The premium scales with how little you put down: at CMHC, 2.80% of the loan at 15–19.99% down, 3.10% at 10–14.99% down, and 4.00% at 5–9.99% down. It's usually added to your mortgage and amortized, so a $500,000 mortgage at 5% down carries $20,000 of premium ($500,000 × 4.00%). In Ontario, provincial sales tax on the premium ($1,600 in that example, at 8%) is paid in cash at closing.

The upside is access and price: insured mortgages let you buy with as little as 5% down and usually carry the lowest rates on the market, because the lender's risk is covered. Whether insured or conventional wins comes down to your down payment and the rate spread — a broker can model both.

Sources

CMHC mortgage loan insurance cost (CMHC)
How much you need for a down payment (Financial Consumer Agency of Canada)

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Closing costs

The one-time costs you pay on or before the closing date, on top of your down payment: land transfer tax, legal fees and disbursements, title insurance, adjustments (such as property tax the seller prepaid), the home inspection and, on some files, an appraisal. A common planning range is 1.5% to 4% of the purchase price.

IRD

Interest Rate Differential

Interest Rate Differential: a prepayment penalty on closed fixed-rate mortgages that approximates the interest the lender loses when you break early. It's roughly your balance × (your rate − a comparison rate for the time left in your term) × the years remaining. On a fixed mortgage you usually pay the greater of the IRD or three months' interest.

Land transfer tax

LTT

A tax paid by the buyer when land changes hands. In Ontario it's charged on a marginal scale from 0.5% to 2.5% of the price; homes in the City of Toronto also pay a municipal land transfer tax (MLTT) with the same brackets up to $2 million and higher rates on luxury tiers.

Prepayment penalty

The charge for paying off or breaking a closed mortgage before the end of its term (or prepaying more than your privileges allow). Closed variable: usually three months' interest. Closed fixed: usually the greater of three months' interest or the interest rate differential (IRD). Your contract sets the exact formula.

Title insurance

A one-time insurance policy, usually bought through your lawyer at closing, that protects the owner and/or lender against covered losses from problems with the property's title: for example title fraud, undisclosed liens or work orders, survey issues or encroachments. In Ontario the premium is typically a few hundred dollars on a residential purchase.

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