CMHC Insurance, Explained

If you are buying a home in Canada with less than 20% down, you have almost certainly run into the term mortgage default insurance, often just called "CMHC insurance." It is one of the most misunderstood costs in a purchase, and one of the most predictable once you know how it works.

This guide covers the essentials for buyers: why the insurance exists, how the premium is calculated, who the three providers are, the difference between insured, insurable, and conventional mortgages, the provincial sales tax trap, and whether to finance the premium or pay it up front.

Mortgage Squad Advisors is licensed in Ontario under FSRA #13737. The rules and rates below are Canadian-correct as a general guide; your exact premium depends on your purchase price and down payment.

Mortgage default insurance is required when you put down less than 20% of the purchase price. A mortgage with less than 20% down is called high-ratio, and Canadian rules do not allow lenders to fund a high-ratio mortgage without this insurance in place.

The key thing to understand is who it protects. The insurance protects the lender, not you, if a borrower stops paying and the home is sold for less than the outstanding balance. You pay the premium, but the coverage backs the bank.

In exchange, the system lets Canadians buy with as little as 5% down rather than waiting years to save a full fifth of the price. Because the lender's risk is covered, insured mortgages often carry very competitive interest rates, which can offset part of the premium cost.

The premium is a percentage of the mortgage amount, and it is tiered by how much you put down, measured as loan-to-value (the loan divided by the price). The smaller your down payment, the higher the percentage, because the insurer is taking on more risk. Approximate standard tiers are:

• 5% to 9.99% down: roughly 4.00% of the loan amount.
• 10% to 14.99% down: roughly 3.10% of the loan amount.
• 15% to 19.99% down: roughly 2.80% of the loan amount.

Treat these as approximate. As a rough example, a $400,000 mortgage at 5% down would carry a premium near $16,000 (about 4.00%), while the same loan at 15% down would be closer to $11,200 (about 2.80%). The exact figure is confirmed by the insurer when your file is submitted.

You can see how down payment size changes the math in the affordability calculator before you commit to an offer.

There is not just one insurer. Canada has three mortgage default insurance providers: CMHC (the federal Crown corporation), Sagen, and Canada Guaranty. People say "CMHC insurance" out of habit, but your mortgage may be insured by any of the three.

For most buyers the experience is the same. The premium tiers are closely aligned across all three, and the choice of insurer is usually made by your lender based on its own arrangements rather than by you. The coverage and the rules are comparable.

Where they can differ is around the edges, such as how each treats certain property types, income situations, or program features. Because the lender typically picks the insurer, the practical lever for a buyer is choosing the right lender, which is where a broker helps.

These three words describe how your mortgage relates to default insurance, and they affect the rate you are offered:

• Insured (high-ratio): less than 20% down, so default insurance is mandatory and a premium is charged.
• Insurable: 20% or more down, so no premium is charged to you, but the mortgage still meets the insurer's eligibility rules. Lenders can insure these in the background at low cost, which often unlocks better rates.
• Conventional (uninsured): 20% or more down on a mortgage that does not meet insurer rules, so it cannot be insured at all.

The surprising part for many buyers is that 20% down does not automatically mean the best rate. An insurable mortgage can price better than an uninsured one, because the lender's risk is lower. Loans fall into the conventional bucket for reasons like a long amortization, a high purchase price, a rental property, or a refinance.

This is one reason a larger down payment is not always the obvious win. The right structure depends on the whole picture, and it is worth reviewing before you lock anything in.

Here is the trap that catches buyers off guard. In four provinces, Ontario, Quebec, Saskatchewan, and Manitoba, the premium is subject to provincial sales tax. And unlike the premium itself, the sales tax on the premium cannot be added to your mortgage.

That means the PST must be paid in cash at closing, on top of your down payment and your other closing costs. It is a real line item you have to budget for, even though the premium below it is being financed.

As an illustration, on a premium of roughly $16,000 in Ontario, the provincial sales tax adds about $1,280 in cash due on closing day. The amount scales with the size of your premium, so a smaller down payment means a larger premium and a larger tax bill to settle up front.

If your purchase is in one of these four provinces, fold this into your closing-cost plan early so it does not become a surprise.

The premium itself is flexible. You can pay it in cash at closing, or you can add it to your mortgage and pay it off gradually as part of your regular payments over the life of the loan (amortize it). Most buyers choose to finance it, because it keeps cash free for the down payment and other closing costs.

The trade-off is interest. Rolling the premium into the mortgage means you pay interest on it over the years, so the convenience has a long-term cost. Paying it up front avoids that interest but requires more cash on closing day.

Remember the split from the previous section: even if you finance the premium, the provincial sales tax on it (in ON, QC, SK, MB) is still due in cash at closing. So financing reduces, but does not eliminate, the cash you bring to the table.

For most buyers stretching to enter the market, financing the premium and paying only the tax in cash is the practical choice. Which is right for you comes down to how much cash you can spare without leaving yourself short.

Default insurance is the price of buying with less than 20% down, and it is far more predictable than its reputation suggests: a tiered premium that you can usually finance, three providers with closely aligned rules, and one cash item, the provincial sales tax, that you cannot roll in. Knowing those pieces means no surprises on closing day.

When you are ready, start an application to see exactly what your premium and rate would be, or ask Maya any questions about how default insurance affects your purchase. Mortgage Squad Advisors, FSRA #13737, will make sure the numbers are clear before you sign.