CMHC Mortgage Insurance: What It Costs and When It’s Worth It
Mortgage default insurance is the reason Canadians can buy a home with as little as 5% down. It also adds thousands of dollars to your mortgage. Here is how it works, what it costs, and how to decide whether it is worth avoiding.
What mortgage default insurance is (and is not)
Mortgage default insurance protects your lender if you stop making payments. It does not protect you, your equity, or your family — that is the role of mortgage life or disability insurance, which is a separate and optional product. Default insurance is often called "CMHC insurance" after the Canada Mortgage and Housing Corporation, the Crown corporation that provides most of it, but private insurers such as Sagen and Canada Guaranty offer the same coverage at essentially the same prices.
In Canada, federally regulated lenders must insure any mortgage where the down payment is less than 20% of the purchase price. Such mortgages are called high-ratio mortgages. With 20% or more down, insurance is not legally required, though lenders sometimes insure low-ratio mortgages in bulk at their own cost.
Eligibility rules
- The purchase price must be under $1.5 million. Homes at $1.5 million or more need at least 20% down.
- The down payment must meet the minimum: 5% of the first $500,000 and 10% of the portion above $500,000.
- The maximum amortization is 25 years, or 30 years for first-time buyers and purchasers of newly built homes.
- The home must be owner-occupied (or occupied by a close relative) and you must pass the mortgage stress test.
Premium rates
The premium is a one-time charge calculated as a percentage of your mortgage amount. The percentage rises as your down payment shrinks:
| Loan-to-value | Down payment | Premium (% of loan) |
|---|---|---|
| Up to 65% | 35% or more | 0.60% |
| 65.01% – 75% | 25% or more | 1.70% |
| 75.01% – 80% | 20% or more | 2.40% |
| 80.01% – 85% | 15% or more | 2.80% |
| 85.01% – 90% | 10% or more | 3.10% |
| 90.01% – 95% | 5% or more | 4.00% |
An additional 0.20% applies to eligible insured mortgages with amortizations longer than 25 years. Tiers below 80% loan-to-value mostly matter for refinancing and portfolio insurance; for a purchase, buyers with less than 20% down will land in one of the top three tiers.
Worked example
The sales tax buyers forget
In Ontario, Quebec, and Saskatchewan, provincial sales tax applies to the insurance premium. Unlike the premium itself, this tax cannot be rolled into the mortgage — it must be paid at closing, usually through your lawyer or notary. Build it into your closing-cost budget alongside land transfer tax, legal fees, and adjustments.
Enter a price and down payment to see the minimum down payment, your premium tier, the provincial tax, and the monthly cost of insurance.
Calculate Your PremiumShould you wait until you have 20% down?
It is tempting to treat the premium as money wasted, but the comparison is more nuanced. Consider these factors:
- Insured rates are often lower. Because the lender's risk is covered, high-ratio mortgages frequently receive better interest rates than uninsured ones, offsetting part of the premium.
- Time has a cost. Saving an extra 10% to 15% of a home's price can take years. If prices or rents rise meanwhile, waiting can cost more than the premium.
- Measure the monthly impact. On the example above, the $24,000 premium adds roughly $133 a month at 4.50% over 25 years. Compare that to the rent you would pay while saving.
- Smaller premium steps exist. Moving from 9% down to 10% down drops the rate from 4.00% to 3.10%; moving from 14% to 15% drops it to 2.80%. Reaching the next tier can be worthwhile even if 20% is out of reach.
Tax-advantaged accounts can shorten the saving period considerably. Our guide to the FHSA and Home Buyers' Plan explains how first-time buyers can combine them.
The bottom line
Default insurance is a cost, not a penalty. It gives buyers access to homeownership years sooner and often comes with a lower interest rate. Run the numbers for your situation rather than following a blanket rule, and remember the provincial tax when planning your cash at closing.
Run Your Numbers with Mortgage Walk
Put these ideas to work. Use the free Mortgage Walk calculator to estimate your monthly payment, visualize your amortization schedule, and compare multiple scenarios side-by-side — no sign-up required.
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