In Canada, if you purchase a home with down payment amounting to less than 20% of the purchase price, you are legally required to purchase mortgage default insurance. This is universally known as CMHC Insurance (though it can also be provided by private insurers Sagen or Canada Guaranty).
The Biggest Misconception
CMHC insurance does not protect you, the buyer, if you lose your job or get sick. It protects the bank if you default on your mortgage. You are paying a hefty premium to ensure the bank carries zero risk.
How Much Does CMHC Insurance Cost?
The premium is calculated as a percentage of your total loan amount, and the percentage decreases as your down payment size increases.
- 5% to 9.99% Down: The premium is 4.00% of the loan.
- 10% to 14.99% Down: The premium is 3.10% of the loan.
- 15% to 19.99% Down: The premium is 2.80% of the loan.
- 20% or More Down: No insurance required (conventional mortgage).
For example, if you buy a $600,000 condo with a minimum 5% down ($30,000 base), your loan is $570,000. The CMHC premium is 4% of $570,000, which equals $22,800. This $22,800 is added to your mortgage balance, meaning you are paying interest on that insurance for the next 25 years.
The PST Trap on Closing Day
While the $22,800 premium is rolled into your mortgage, the Provincial Sales Tax (PST) on that premium is not. Ontario charges 8% PST on mortgage default insurance. You must pay 8% of $22,800 (which is $1,824) completely out-of-pocket, in liquid cash, on closing day. First-time buyers frequently miss this calculation in their closing cost estimates.
Check out our Closing Cost Calculator—it automatically calculates your CMHC PST so you aren't surprised.
The Argument for Insured Mortgages
Despite being expensive, paying CMHC insurance often makes financial sense for first-time buyers. Because the loan is zero-risk for the bank, lenders offer heavily discounted "insurable interest rates." An insured fixed rate is typically 0.20% to 0.40% lower than an uninsured conventional rate. Furthermore, breaking into the market with only 5% down allows you to start capturing equity appreciation 5 years earlier than if you spent half a decade saving up a 20% down payment.