CMHC Mortgage Default Insurance
CMHC insurance (mortgage default insurance) is mandatory in Canada when your down payment is under 20%. It protects the lender — not you — if you default, and its premium (roughly 2.8%–4% of the mortgage) is usually added to your mortgage balance. In exchange, insured borrowers get access to the lowest advertised rates and can buy with as little as 5% down.
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Key Takeaways
- Under 20% down, default insurance is mandatory — the premium (≈2.8%–4%) is added to your mortgage, but Ontario's 8% sales tax on it is due in cash at closing.
- The insurance protects the lender, not you — yet insured mortgages typically get the lowest rates in the market.
- Minimum down payment is 5% on the first $500K and 10% above it, up to the insured price cap.
- Whether to wait for 20% down is a math problem — premium cost vs. rent, rate discounts, and price movement — not a rule of thumb.
When Insurance Is Required — and What It Costs
If your down payment is less than 20% of the purchase price, Canadian law requires mortgage default insurance from CMHC or a private insurer (Sagen or Canada Guaranty). The premium scales with your loan-to-value:
5%–9.99% down: premium of about 4.00% of the mortgage amount
10%–14.99% down: about 3.10%
15%–19.99% down: about 2.80%
The premium is almost always added to the mortgage balance rather than paid in cash — but Ontario charges provincial sales tax (8%) on the premium, and that tax IS due in cash at closing. On a $40,000 premium, that's $3,200 many first-time buyers haven't budgeted.
Minimum down payments are tiered: 5% on the first $500,000 of the price and 10% on the portion above it, up to the insured price cap ($1.5 million since 2024 policy changes — confirm the current cap when you plan).
What Insured Buyers Get in Return
Counterintuitively, insured mortgages usually carry the LOWEST rates in the market — often 0.10%–0.25% below uninsured rates — because the lender's risk is covered. Insured buyers also gained access to 30-year amortizations on new builds and for first-time buyers under recent federal changes.
The insurance follows the loan, not you: it's a one-time premium per mortgage, portable in some cases if you move and port the mortgage. It does NOT protect you — if you default, the insurer pays the lender and can still pursue you for the shortfall. Borrower protection products (mortgage life/disability insurance) are a completely different, optional product.
The 20% Question: Should You Wait to Save More?
The classic first-time buyer dilemma: buy now with 10% down and pay a ~3.1% premium, or wait to reach 20%. The honest answer is market math, not a rule of thumb.
What matters: how fast you can save the difference, what rents cost you in the meantime, the rate discount insured mortgages get, and what price movement does to the target while you save. In a flat market, waiting can win; historically in the GTA, multi-year waits to avoid a premium have often cost more in price appreciation than the premium itself.
Run both scenarios with real numbers before deciding — it's a 30-minute exercise with a mortgage broker, and it's exactly the kind of decision that shouldn't be made on a slogan.
Frequently Asked Questions
Is CMHC insurance the same as mortgage life insurance?+
No. Default insurance protects the lender if you fail to pay and is legally required under 20% down. Mortgage life or disability insurance is an optional product that pays your mortgage if you die or can't work. Lenders often offer the second at closing — evaluate it like any insurance purchase, not as part of the mortgage.
Can I avoid the premium by getting to exactly 20% down?+
Yes — at 20% down the mortgage is 'conventional' and no insurance is required. But compare full scenarios first: insured rates are often lower, and stretching to 20% by draining your closing-cost and emergency funds is usually a worse position than 15% down with reserves.
Does the premium apply every time I buy?+
The premium applies per insured mortgage. If you port an insured mortgage to a new home, you may pay only a top-up premium on the increased amount. If you break the mortgage and start fresh under 20% equity, a new premium applies.
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