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Summary: Mortgage default insurance protects your lender, not you, and it is mandatory in Canada whenever you buy with less than a 20% down payment. The premium is a percentage of your mortgage that climbs as your down payment shrinks, and it is usually added to the loan. In Ontario there is a catch: the province charges sales tax on that premium, and unlike the premium itself, the tax has to be paid at closing.
Most first-time buyers in Ontario run into mortgage default insurance whether they were expecting it or not. It is not optional if your down payment is under 20%, and the sales tax piece is a closing-day cost people rarely budget for. Here is what it is, when you need it, what it costs, and where it lands at closing.
What is mortgage default insurance?
Mortgage default insurance covers the lender if a borrower stops making payments and the sale of the home does not repay the loan. It does nothing for you directly, but it lets lenders extend financing to buyers with smaller down payments at normal interest rates. Per the Canada Mortgage and Housing Corporation, it is what makes a low-down-payment mortgage possible in the first place.
Three insurers provide it in Canada: CMHC, a federal Crown corporation, and two private companies, Sagen and Canada Guaranty. Their rules and premium rates are effectively the same, so which one backs your loan is your lender's choice, not something you shop for.
When do you need it, and when can you skip it?
The rule is simple: a down payment under 20% means a "high-ratio" mortgage, which must be insured. Put down 20% or more (a "conventional" mortgage) and you do not pay it. A few conditions shape whether you qualify at all:
Minimum down payment. You need at least 5% on the first $500,000 of the price and 10% on the portion between $500,000 and $1.5 million.
Price ceiling. Homes priced at $1.5 million or more cannot be insured, so a down payment of 20% or more is required at that level.
Amortization. Insured mortgages generally cap at a 25-year amortization, with a 30-year option available to some first-time buyers and new-build purchases (which carries a surcharge, below).
What does it cost?
The premium is a percentage of your mortgage amount, and it rises as your down payment falls, because a smaller down payment is a bigger risk for the insurer. These are the current CMHC rates for an owner-occupied home:
Down payment | Loan-to-value | Premium (% of the mortgage) |
5% to 9.99% | 90.01% to 95% | 4.00% |
10% to 14.99% | 85.01% to 90% | 3.10% |
15% to 19.99% | 80.01% to 85% | 2.80% |
20% or more | 80% or less | Not required |
A 30-year amortization adds a 0.20% surcharge to whichever rate applies. The premium itself is a one-time charge that is normally added to your mortgage principal, so you finance it over the life of the loan rather than paying it up front. That also means it quietly increases both your balance and your regular payment.
The Ontario wrinkle: sales tax on the premium
Here is the part that catches Ontario buyers off guard. Ontario is one of a few provinces that charges provincial sales tax on the mortgage default insurance premium, at 8%. Crucially, the CMHC premium rules confirm that this sales tax cannot be added to the loan amount. So while the premium is financed, the tax on it is due in cash on closing day.
That makes it a closing cost, and it is one your real estate lawyer accounts for on your statement of adjustments. On a large premium the tax can run to several hundred dollars, so it belongs in your closing budget alongside land transfer tax and legal fees. Our guide to the costs involved in a real estate transaction puts it in context with the rest of what is due at closing.
Frequently asked questions
Does mortgage default insurance protect me if I lose my job?
No. It protects the lender against a shortfall if you default and the home is sold for less than you owe. It is not payment protection or job-loss insurance for you.
Can I avoid paying it?
Yes, by putting down 20% or more, which makes the mortgage conventional rather than high-ratio. Below 20%, it is mandatory and cannot be waived.
Is CMHC insurance different from Sagen or Canada Guaranty?
Not in any way that affects you. All three follow the same qualifying rules and charge the same premium rates. Your lender chooses the insurer.
Do I pay the premium up front?
Usually not. The premium is typically added to your mortgage and paid off over the life of the loan. In Ontario, though, the 8% provincial sales tax on the premium must be paid at closing and cannot be financed.
Does the premium change with a longer amortization?
Yes. Choosing a 30-year amortization, where you are eligible, adds a 0.20% surcharge to the premium rate that would otherwise apply.
About the author
Joel Fox is a co-founder and COO at Ownright. He helps run the firm's day-to-day work on Ontario residential closings, refinances, and sales, and writes regularly to demystify the parts of a transaction that most homeowners only encounter once or twice in their lives.
At Ownright, we focus entirely on Ontario residential real estate law. On a purchase, we account for the sales tax on your mortgage default insurance premium in your statement of adjustments so the closing-day number is right, with no surprises. You can start your closing online or get in touch with any questions.
Legal references: Canada Mortgage and Housing Corporation, mortgage loan insurance premium schedule and consumer guidance; Ontario retail sales tax on insurance premiums.
Important note: This article is not legal, financial, or tax advice. No one should act, or refrain from acting, based solely on the information in this post or any linked materials without first seeking appropriate legal or professional advice.
