Mortgage default insurance in Canada

In Canada, a 20% down payment on a home is considered safe by most mortgage lenders; with a down payment of that amount, you won’t normally need to pay for any supplemental “mortgage default insurance” to protect the lender against a default. For homes costing less than $1.5 million, a smaller down payment is allowed, as low as 5%, but in these cases borrowers are essentially required¹ to pay for mortgage default insurance insurance.

Most such is provided by the public agency CMHC, which has charged the following premiums for many years²:

• Down payment of >=15%, <20%: 2.8%

• =10%, <15%: 3.1%

• =5%, <10%: 4.0%

These premiums are calculated as a fraction of the principal, and normally added to the amount of the mortgage. For example, with a purchase price of $600 thousand and a 10% down payment, the principal would be $540,000 and the CMHC premium would be $16,740. The buyer would put $60,000 down and the initial amount owing would be $556,740, thus leaving $43,260 in equity.

… is really cheap!