Mortgage default insurance, often referred to as CMHC insurance, is mandatory in Canada for down payments of less than 20% of the purchase price. Mortgage default insurance protects lenders in the event a borrower stops making payments and defaults on their mortgage loan. Mortgage default insurance premiums are paid for in full by the borrower at the start of their mortgage.

Although mortgage default insurance costs home buyers 2.8% to 4.0% of their mortgage amount, it does allow Canadians who might not otherwise be able to purchase homes access to the Canadian real estate market. Without it, mortgage rates would be higher, as the risk of default would increase. Lenders are able to offer lower mortgage rates when mortgages are protected by mortgage default insurance, because the risk of default is passed along to the mortgage insurer.

Qualifying for mortgage default insurance

There are some requirements you have to meet in order to qualify for mortgage default insurance:

• The maximum amortization for insured mortgages is 25 years.
• If the purchase price is between $500,000 - $999,999, a higher down payment is required. The minimum down payment is 5% of the first $500,000, and 10% of the remaining amount.
• Mortgage default insurance is not available on homes purchased for more than $1 million; this means that a 20% minimum down payment is required on these homes.

There are several other requirements in order to be approved for CMHC coverage, specifically. These requirements changed on July 1st, 2020 in response to the economic downturn and became much more stringent. However, in response to a massive loss in market share, these updated rules were then reversed on July 5, 2021. Currently, the following applies: 

• Your minimum credit score must be 600 (down from the 680 stipulated in July 2020)
• You must have a Gross Debt Service ratio of less than 39% (up from 35% stipulated in July 2020)
• You must have a Total Debt Service ratio of less than 44% (up from 42% stipulated in July 2020)
• You must not borrow money for your down payment (this requirement is unchanged from July 2020)

It's important to note that private companies that also provide mortgage default insurance, such as Canada Guaranty, did not follow suit to make requirements more stringent, and, as a result, have become more popular with home buyers since CMHC updated its eligibility threshold (despite the CMHC having since reversed these stricter guidelines). 

Mortgage default insurance rates (CMHC insurance rates)¹

To determine which mortgage default insurance premium rate you have to pay, the first step is to calculate how much your down payment is as a percentage of your home’s purchase price. The chart below outlines the premium rates for each down payment scenario:

*These mortgages have a down payment of greater than 20%. While you won't be paying the mortgage default insurance premiums in this case, coverage is still available to your lender, and they will often take out mortgage default insurance on your mortgage anyway.

These same rates are charged by all three providers: CMHC, Sagen and Canada Guaranty. Keep in mind that you'll also need to pay provincial sales tax (PST) on your premiums if you live in Manitoba, Quebec, Ontario, and Saskatchewan. PST can't be added to your mortgage, so you'll need to pay up front, in cash.

How do you calculate mortgage default insurance?

To understand how mortgage default insurance is calculated and paid for quickly, watch the video below. Scroll down further for more details on the calculations.

Let's say you just purchased a home for $300,000 and made a $40,000 down payment. Your mortgage default insurance premium would be calculated as follows: