If your down payment is less than 20% of the price, your mortgage needs default insurance. It’s often called CMHC insurance, after the largest insurer. It protects the lender if you stop paying, and in return, it lets you buy with a smaller down payment.
What it costs
The premium is a percentage of your mortgage amount. The less you put down, the higher the percentage.
| Down payment | Typical premium |
|---|---|
| 5% to 9.99% | 4.00% of the mortgage |
| 10% to 14.99% | 3.10% of the mortgage |
| 15% to 19.99% | 2.80% of the mortgage |
| 20% or more | Not required |
These are approximate current premiums. A 30-year amortization, where available, adds a small surcharge.
How it’s paid
Most people add the premium to their mortgage, so they don’t pay it up front. It’s then paid off along with the rest of the mortgage. In Ontario, 8% provincial sales tax applies to the premium. It can’t be added to the mortgage and must be paid in cash at closing.
An example
On a $600,000 home with $35,000 down, the mortgage before insurance is $565,000. A 4.00% premium adds $22,600, for a total mortgage of $587,600.
Is it worth it?
Insurance adds to your cost, but it can get you into a home years sooner than saving a full 20%. Insured mortgages also often come with lower rates, because the lender’s risk is lower. Whether it’s worth it depends on how quickly you could save more, and what prices are doing where you want to buy.
