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What is Mortgage Insurance and How Does It Work In Canada?


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Mortgage insurance is a financial product that provides protection for lenders if a borrower defaults on payments, loses income, or passes away.

It is an added payment included in your mortgage if your loan amount is more than 80% of the value of your home.

In this post, learn more about mortgage insurance in Canada, how it works, and the best mortgage insurance providers in the country.

What is Mortgage Insurance and How Does It Work?

Mortgage insurance generally refers to a type of insurance that protects lenders from defaulting borrowers.

In Canada, mortgage insurance can refer to mortgage default insurance or mortgage protection insurance.

Mortgage Default Insurance

Mortgage default insurance is an insurance policy that protects a lender or a title holder if the borrower defaults on mortgage payments.

It is mandatory if you want to buy a new home with a down payment of less than 20% of the home’s purchase price.

With mortgage default insurance, a lender is exposed to lesser risk when granting mortgage loans to homeowners who put down a modest down payment.

The cost of mortgage default insurance is calculated based on a percentage of the amount of your mortgage loan and the size of your down payment.

The average cost of mortgage default insurance can range from 2.8% to 4.0%, depending on your financial situation and loan-to-value ratio. Use a mortgage insurance calculator to get more accurate results.

The loan-to-value ratio refers to how much you want to borrow compared to the value of the house you want to buy.

The borrower pays the premium for the mortgage insurance to the lender. The premium is added to the principal loan amount and paid over the same amortization period.

The insurance may be paid through lump sum or added to your mortgage payments.

Mortgage Protection Insurance

Meanwhile, mortgage protection insurance covers your mortgage payments in the event of unexpected life events such as job loss, illness, disability, or death.

It is an optional add-on that covers a portion or all of the outstanding mortgage loan when any of the said events occur.

The premium cost will depend on factors like the amount of your monthly payments, your age, and the mortgage amount at the time of insurance application.

Premiums are paid weekly, semi-monthly, or monthly or added to your payments.

This insurance normally comes with a 30-day period that allows cancellation. If you cancel within this time, you get a refund of all the premiums you paid.

Public vs Private Mortgage Insurance

Mortgage insurance can be public or private, depending on the insurer. By purchasing public or private mortgage insurance, you can own a home with a down payment as low as 5%.

Private mortgage insurance (PMI) is provided by private lenders such as banks and private insurance companies.

Public mortgage insurance refers to that offered by the government through the public mortgage insurer Canadian Mortgage and Housing Corporation (CMHC), the national housing agency of Canada.

Do You Need Mortgage Insurance?

Mortgage default insurance is a must if you want to apply for a mortgage loan and your down payment is lower than 20% of the purchase price of the home.

Otherwise, you cannot secure an uninsured mortgage from any Canadian bank.

If you can only afford a lower down payment, your lender may require you to purchase mortgage loan insurance to approve your mortgage financing application.

For lenders, a lower down payment indicates that your mortgage is for a higher ratio of the value of your home.

Lenders consider borrowers with high-ratio mortgages more at risk of defaulting or non-payment.

To avoid paying for mortgage insurance, consider saving enough to afford the required minimum down payment.

What Is Mortgage Insurance vs Homeowners Insurance?

Mortgage insurance protects lenders by covering your loan balance in the event of disability, critical illness, or death.

It protects your lender in case you cannot meet your mortgage obligations.

Homeowners insurance is a form of protection for your property in times of loss, theft, fire, and other such events. It also provides coverage for your civil liability.

This insurance type covers the structure of your home, protects your belongings, and shields you from liability claims.

Best Mortgage Insurance Companies in Canada

Mortgage insurance providers include banks and insurance companies. They implement different policies, so it is vital to read them carefully before making a choice.

Below are the top three mortgage insurance companies in Canada.


Sagen, formerly known as Genworth Canada, is the largest private default mortgage insurance provider in the country.

Based in Oakville, ON, it makes homeownership more accessible to first-time home buyers by providing mortgage default insurance.

Sagen’s financial offerings help first-time home buyers with as little as a 5% down payment and qualified borrowers who want to purchase a home with over 20% down payment.

Its products include the Homebuyer 95 Program, which enables qualified homebuyers to own a home even with a down payment as low as 5%.

It also features the New to Canada program for individuals who recently immigrated or relocated to Canada and wish to own a home with a down payment as low as 5%.

It also offers a program for borrowers unable to save the required down payment to start building equity today.

Canada Guaranty

Canada Guaranty, based in Toronto, ON, is a 100% Canadian-owned private mortgage insurer with an array of products for home buyers with down payments of less than 20% of the property’s value.

Its financial products include the Downpayment Advantage, designed for borrowers who can pay at least a 5% down payment toward the purchase of a home.

Another program, Maple Leaf Advantage, is for new immigrants who want to purchase a home with 5% down and have limited credit history documentation.

Qualified borrowers who want to buy residential investment properties with a minimum 20% down payment can benefit from the Rental Advantage program.

Canadian Mortgage and Housing Corporation (CMHC)

CMHC is the national housing agency of Canada. It offers mortgage insurance and allows you to obtain a mortgage loan for up to 95% of the value of a home.

A CMHC-insured mortgage can also help you own a home with a minimum down payment starting at 5%.

It offers mortgage loan insurance on various types of property, such as duplexes, condominiums, manufactured or mobile homes, and rental and retirement homes.

The maximum purchase price for CMHC mortgage loan insurance is $1,000,000.

CMHC insurance will cover your insured mortgage loan amount. If you default on your mortgage payments, CMHC will pay your lender to cover their losses.

The agency also offers mortgage protection insurance to help cover your mortgage due to job loss, critical illness, disability, or death. 

To obtain CMHC mortgage loan insurance, request a CMHC-insured mortgage when applying for a mortgage from your lender.

Pros and Cons of Mortgage Insurance

Getting a mortgage insurance policy has pros and cons that will help you evaluate the product and determine if it is the right solution for you.


  • Allows you to buy a house with a lower down payment
  • Easy to qualify for
  • Can cancel the policy anytime
  • Helps Canadians enter the housing market
  • Convenient monthly amortizations through your existing mortgage
  • Refundable if cancellation is made in your first 30 days


  • Does not protect you from foreclosure
  • Protection provided is for the lender only
  • Cannot change coverage or term
  • Loss of coverage as you pay off your mortgage
  • Changing lenders may cause you to lose coverage

Is Mortgage Insurance Worth It In Canada?

Lenders typically recommend mortgage default insurance, particularly if they sell the product themselves and if your down payment is below 20% of the value of your home.

While you pay the mortgage insurance premiums and fees added to your mortgage payments, this type of insurance protects the lender rather than you, the homeowner.

Mortgage loan insurance is typically expensive, and the premiums stay the same even as your mortgage balance decreases.

The primary upside to this type of insurance is that it helps you own a home even if you only have a modest down payment.

With mortgage protection insurance, you have protection during unexpected life events that severely affect your ability to make payments.

While it is not mandatory, it is one way to ensure your family keeps your home no matter what happens to you.

If you want to forego mortgage loan insurance, it is best that you make a larger down payment to avoid being required to purchase the said insurance.

It may also make more sense to choose a less expensive home. This way, you would be more likely to afford the 20% down payment.


How long do you have to pay for mortgage insurance in Canada? 

When you have reached at least 20% equity in your home, you can cancel your private mortgage insurance. Once you have brought down the balance of your mortgage to 80% of its initial value, or your home’s initial purchase price, you can ask your lender to cancel or call off your mortgage insurance.

What is the typical cost of mortgage insurance?

While the cost associated with mortgage default insurance depends on the amount of your down payment, the cost typically ranges from 2.8% to 4% of the amount of the mortgage. The typical calculation is as follows: 5% to 9.99% down payment – 4.00%; 10% to 14.99% down payment – 3.10%; and 15% to 19.99% down payment – 2.80%. The higher your down payment, the less you will be charged for your mortgage insurance.

How much is mortgage insurance on a $300,000 loan?

Assuming an insurance premium of 4%, the mortgage insurance for a loan of $300,000 is $12,000. This is calculated by multiplying the loan amount by the insurance premium.

Who needs mortgage insurance in Canada?

If you want to buy a home and make a down payment of less than 20% of the price of your home, you will need mortgage insurance. Otherwise, your lender will not provide mortgage financing. Lenders protect themselves from defaulting borrowers by requiring mortgage insurance.

Related: Conventional Mortgages in Canada


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Enoch Omololu, MSc (Econ)

Enoch Omololu, personal finance expert, author, and founder of Savvy New Canadians, has written about money matters for over 10 years. Enoch has an MSc (Econ) degree in Finance and Investment Management from the University of Aberdeen Business School and has completed the Canadian Securities Course. His expertise has been highlighted in major publications like Forbes, Globe and Mail, Business Insider, CBC News, Toronto Star, Financial Post, CTV News, TD Direct Investing, Canadian Securities Exchange, and many others. Enoch is passionate about helping others win with their finances and recently created a practical investing course for beginners. You can read his full author bio.

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