What Is Mortgage Default Insurance in Canada? (And Why You Need It with Less Than 20% Down)
- Alex Leite
- 3 days ago
- 3 min read
What Is Mortgage Default Insurance in Canada? (And Why You Need It with Less Than 20% Down)
Mortgage default insurance, often called CMHC insurance, protects the banks if you can't make your payments.
It's required by law when your down payment is less than 20% of the home's purchase price (or appraised value, whichever is lower). This rule applies Canada-wide. It lets you buy with as little as 5% down (or the minimum required down payment), but it adds a one-time premium.
Why Default Insurance Exists
Lenders face higher risk with small down payments.
A smaller down payment means a greater chance of loss if you default and the home sells for less than what is owed. Default insurance covers that gap for the lender (not you). In exchange, you get access to homeownership sooner and often slightly better rates on high-ratio mortgages.
When You Must Get Default Insurance
1. Down payment < 20% on properties up to $1 million (or $1.5 million in some recent updates - confirm with your bank as rules have evolved).
2. For homes over that cap, 20% down is mandatory, and no insurance is available.
3. Applies to owner-occupied homes (usually 1-2 units max for standard residential).
4. Investment properties or rentals need 20% down, so there is no default insurance required by the borrower.
Minimum Down Payment Rules
- For homes ≤ $500,000: 5% minimum.
- For homes $500,001–$999,999: 5% on the first $500,000 + 10% on the rest.
- Example: $600,000 home → $25,000 (5% on $500k) + $10,000 (10% on $100k) = $35,000 minimum down.
Who Provides Default Insurance
Three main providers:
- CMHC (government-backed, most well-known)
- Sagen (formerly Genworth)
- Canada Guaranty
Your bank picks the insurer. Premiums and rules are essentially identical across insurance providers.
How Much Does It Cost? (Default Insurance Premiums)
The premium is a percentage of your mortgage amount (not home price).
It depends on your loan-to-value (LTV) ratio. A higher LTV (smaller down payment) means a higher premium.
Current Premium Rates:
Source: CMHC Website as of January 2026
(Exact rates can vary slightly by insurer/product. Always use your lender's calculator.)
To come up with the default insurance cost, you can:
Add the mortgage premium to your mortgage (most common - the cost is spread over your mortgage life)
Pay upfront (less common - cash at closing)
Provincial sales tax applies in Ontario (HST 13%) - paid upfront on the premium, not added to the mortgage.
Pros and Cons of Putting Less Than 20% Down
Pros:
- Enter the market sooner.
- Often lower interest rates than uninsured low-down-payment options.
- Premium can be financed.
Cons:
- Extra cost (thousands added to your loan, and interest is paid on the premium).
- Can't remove it later - even if you build more than 20% in equity.
- Doesn't protect you (consider separate mortgage protection insurance if worried about job loss/illness).
Recent Changes to Know (as of 2026)
- First-time buyers and new-build purchasers can now get up to 30-year amortization on insured mortgages (vs. standard 25 years max).
- 30-year amortizations lower monthly payments but add a bit more premium cost and interest paid over time.
If you're worried about putting less than 20% down on a home because of the extra cost, feel free to email me at alex@triedandtruemortgages.ca. I’d be happy to chat about your options and plans. Sometimes, a fresh perspective helps.
TL;DR:
Mortgage default insurance (aka CMHC insurance) is mandatory in Canada when your down payment is less than 20% — it protects lenders (not you) if you default, allowing purchases with as little as 5% down on most homes.
The one-time premium (typically 2.8%–4.0% of the mortgage amount, higher for smaller down payments) can be added to your loan or paid upfront; in Ontario, add 13% HST to the upfront premium.
Key perks include faster homeownership and often better rates, but cons include extra costs (plus interest if financed), no removal even after building equity, and recent 2026 updates allowing first-time/new-build buyers up to 30-year amortizations (with a small premium bump).
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