Mortgage Default Insurance

Mortgage Default Insurance

There are three companies in Canada that offer mortgage default insurance: CMHC, Genworth, and Canada Guaranty. Mortgage Default Insurance is often being referred to as CMHC insurance.

CMHC Insurance protects lenders in case homebuyers default on their mortgages. No financial loss is experienced by a lender covered with CMHC insurance. The premium is paid by the borrower and is calculated as a percentage of the mortgage amount. The premium does not have to be paid upfront and can instead be added to the total mortgage amount and paid over time. Premiums in Ontario, Manitoba and Quebec will also be subject to provincial tax, which unlike the CMHC premium will have to be paid upfront.

CMHC insurance plays a very important role in the market and ensures that borrowers receive the same mortgage rate regardless of their down payment amount. Without it, lenders would likely charge higher rates of interest on mortgages with low down payments to compensate for the higher default risk.

CMHC Insurance Rules:

• Mandatory on down payments between 5% and 19.99%
• Not available on homes $1 million+ (purchaser must put at least 20% down)
• Maximum amortization of 25 years (maximum amortization of 35 years is available on non-CMHC insured mortgages