What Is Mortgage Default Insurance?

What Is Mortgage Default Insurance? (And Why It’s Not as Scary as It Sounds)

If you’re planning to buy a home in Ontario with less than a 20% down payment, there’s something you need to know about — and that’s mortgage default insurance.

This cost can catch first-time buyers off guard, but it plays a key role in helping Canadians enter the housing market sooner. So, if you’ve ever Googled “what is mortgage default insurance” or “how does mortgage default insurance work?” — this is for you.

Let’s break it all down.

What Is Mortgage Default Insurance?

Mortgage default insurance, also known as default mortgage insurance, is a premium that you, the buyer, pay — but it actually protects the lender, not you.

Sounds wild, right? But it’s actually a good thing.

This insurance lets banks and lenders offer mortgages to people with smaller down payments (less than 20%) by reducing their risk. Since the loan is insured, lenders feel confident offering you financing — and sometimes even better rates.

Who Offers Mortgage Default Insurance in Canada?

There are three main providers of mortgage default insurance in Canada, and your lender typically arranges this for you:

✅ CMHC (Canada Mortgage and Housing Corporation)
✅ Sagen (formerly Genworth Canada)
✅ Canada Guaranty

Even though the lender sets it up, the cost of mortgage default insurance is paid by you, and it’s based on your down payment size.

How Much Is Mortgage Default Insurance?

This is one of the most common questions: how much is mortgage default insurance? The answer depends on how much you’re putting down.

Here’s a simple breakdown:

5% to 9.99% down → Premium is 4.0% of your mortgage
10% to 14.99% down → Premium is 3.1%
15% to 19.99% down → Premium is 2.8%

Still unsure what it might cost you? Try our mortgage default insurance calculator linked HERE to get a quick estimate based on your purchase price and down payment.

Example:

Buying a $700,000 home with a 10% down payment ($70,000)? Your mortgage is $630,000.
The insurance premium would be $19,530, which gets added to your mortgage — not paid upfront.
So your actual mortgage becomes $649,530.

How Does Mortgage Default Insurance Work?

Let’s recap how this all works:

If your down payment is less than 20%, your lender will require mortgage default insurance.
They choose one of the three approved insurance providers (usually CMHC).
The premium is added to your mortgage, increasing your total loan amount.
You’ll pay 8% PST on the premium, but that PST is not mortgageable — it’s due in full on closing day.

Who Needs Mortgage Default Insurance in Ontario?

Not every buyer will need it. Here’s when it applies:

✅ Your purchase price is under $1.5M
✅ You’re buying an owner-occupied property (not a rental or investment)

❌ Buying a home over $1.5M? You’ll need at least 20% down.
❌ Buying an investment property? That also requires 20% down, no exceptions.

Is Mortgage Default Insurance Worth It?

Even though it’s an extra cost, mortgage default insurance makes homeownership possible for more Canadians — especially in today’s market.

Since lenders are protected, they often offer better mortgage rates on insured mortgages, which can save you money over time. And ultimately, it allows you to buy a home sooner, rather than waiting years to save a 20% down payment.

TL;DR: Mortgage Default Insurance in Ontario

✅ Required if you’re putting less than 20% down
💸 The cost depends on your down payment (ranges from 2.8% to 4%)
🧾 The PST is due upfront at closing — not included in your mortgage
📉 It can lead to better interest rates and faster access to the market
🛠 Try a mortgage default insurance calculator to estimate your costs

Ready to Buy with Less Than 20% Down?

If you’re thinking about buying a home in Ontario and aren’t quite at the 20% mark, don’t stress. I can help you understand your options, crunch the numbers, and plan ahead so there are no surprises.

Have questions about how default mortgage insurance works, how it impacts your mortgage, or how to factor it into your budget? Reach out anytime — I’m here to walk you through it.