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Mortgage Default Insurance or CMHC Insurance

Mortgage default insurance, which is commonly referred to as CMHC insurance, is mandatory in Canada for down payments between 5% (the minimum in Canada) and 19.99%. Mortgage default insurance protects lenders, in the event a borrower ever stopped making payments and defaulted on their mortgage loan.

Although mortgage default insurance costs homebuyers 2.80% - 4.00%1 of their mortgage amount, it does allow Canadians, who might not otherwise be able to purchase homes, access to the Canadian real estate market. Without it, mortgage rates would be higher, as the risk of default would increase. Lenders are able to offer lower mortgage rates when mortgages are protected by mortgage default insurance, because the risk of default is passed along to the mortgage insurer.

There are some requirements you have to meet in order to qualify for mortgage default insurance:

  • The maximum amortization for insured mortgages is 25 years.
  • If the purchase price is between $500,000 - $999,999 a higher down payment is required. The minimum down payment is 5% of the first $500,000, and 10% of the remaining amount.
  • Mortgage default insurance is not available on homes purchased for more than $1 million; this means that a 20% down payment is required on these homes.

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Down payment Down payment The amount of money you pay up front to obtain a mortgage. The minimum down payment in Canada is 5%. For down payments of less than 20%, home buyers are required to purchase mortgage default insurance, commonly referred to as CMHC insurance.
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Amortization period Amortization period The length of time it will take a homeowner to pay off his/her mortgage. In Canada, the maximum amortization period for insurable mortgages is 25 years. Longer amortization periods allow homeowners to make smaller monthly payments, but equate to more interest paid over the life of the mortgage.  
Mortgage insurance Mortgage insurance Mortgage default insurance, commonly referred to as CMHC insurance, protects the lender in the case the borrower defaults on the mortgage. Mortgage default insurance is required on all mortgages with down payments of less than 20%, which are known as high ratio mortgages. Mortgage default insurance is calculated as a percentage applied to your mortgage amount. plus
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