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Mortgage Loan Insurance

Mortgage loan insurance protects the mortgage lender in case you’re not able to make your mortgage payments. It doesn't protect you. Mortgage loan insurance is also sometimes called mortgage default insurance.

If your down payment is less than 20% of the price of your home, you’ll need to purchase mortgage loan insurance.

If you’re self-employed or have a poor credit history, you may also be required to get mortgage loan insurance, even if you have a 20% down payment.

Mortgage loan insurance isn't available, if:

  • the purchase price of the home is $1 million or more
  • the loan does not meet the mortgage insurance company’s standards

Your lender will coordinate getting mortgage loan insurance on your behalf if you need it.

 

Cost of mortgage loan insurance

A premium is a fee you pay to get mortgage loan insurance.

Mortgage loan insurance premiums range from 0.6% to 4.50% of the amount of your mortgage. Your premium will depend on the amount of your down payment. The bigger your down payment, the less you’ll pay in mortgage loan insurance premiums.

Find premiums based on the amount of your mortgage loan:

  • Canada Mortgage and Housing Corporation (CMHC)
  • Genworth
  • Canada Guarantee Mortgage Insurance Company

To pay your premium, you can either add them to your mortgage loan or pay them with a lump sum up front. If you add your premium to your mortgage loan, you'll be paying interest on your premium at the same interest rate you're paying for your mortgage.

Ontario, Manitoba and Quebec apply provincial sales tax to mortgage loan insurance premiums. Provincial taxes on premiums can’t be added to your mortgage loan. You must pay these taxes when your lender funds your mortgage.

Example: How mortgage loan insurance premiums are calculated

Suppose you want to buy a home for $400,000. You have a down payment of $56,000, which is 14% of the purchase price. Because your down payment is less than 20%, you’ll need to get mortgage loan insurance.

Based on the size of your down payment, your premium will be 3.10% of your loan amount.

To calculate your mortgage loan insurance premium:

  • Take the price of your home and subtract your down payment ($400,000 - $56,000 = $344,000)
  • Take the amount of your mortgage and multiply by the insurance premium ($344,000 x 3.10% = $10,664)
  • Your mortgage loan insurance premium will be $10,664

If you add the premium to your loan ($344,000 + $10,664 = $354,664), your mortgage loan would now be $354,664. You’ll now have to pay more interest charges because the amount of your mortgage has increased.

Let's assume you plan to pay off this mortgage over 25 years with a 4% interest rate. Compared to someone with a 20% down payment on the same home, you’ll pay an extra $20,038 in interest on your mortgage loan insurance premium.

In total, you’ll pay $30,702 in mortgage loan insurance.

 

How the size of a down payment affects the total cost of a mortgage

Save as much as you can for your down payment. The bigger the down payment, the smaller the mortgage, which can save you thousands of dollars in interest charges.



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