What mortgage default insurance is — and what it is not
Mortgage default insurance — often called CMHC insurance after the largest provider — protects the lender if the borrower defaults on their mortgage. It does not protect the borrower. If you stop making payments and the lender forecloses, the insurer pays the lender the outstanding balance. The borrower still loses the home and takes the credit hit.
This insurance is mandatory for all 'high-ratio' mortgages — those with a down payment of less than 20% of the purchase price. The requirement is set federally and enforced by OSFI for federally regulated lenders. Three providers offer mortgage default insurance in Canada: CMHC (Canada Mortgage and Housing Corporation, a Crown corporation), Sagen (formerly Genworth Canada), and Canada Guaranty.
Despite the name, this is not the same as mortgage life insurance or mortgage protection insurance — which pays off the mortgage if the borrower dies or becomes disabled. Default insurance is a regulatory requirement for high-ratio lending. It is not optional if you have less than 20% down, and you cannot shop among providers — the lender chooses the insurer.
Mortgage default insurance makes 5% down payments possible — but the premium cost is real and should be factored into the total cost of homeownership.
CMHC vs Sagen vs Canada Guaranty — what differs between providers
While all three mortgage insurers follow the same federal framework, there are practical differences. CMHC is the largest and historically most conservative — it tends to have the strictest underwriting guidelines for self-employed borrowers, rental properties, and extended amortizations. CMHC also caps the maximum purchase price it will insure, currently at $1,000,000.
Sagen and Canada Guaranty are private insurers that sometimes offer more flexible underwriting for specific borrower profiles. For example, they may be more accommodating of self-employed borrowers with strong businesses but non-traditional income documentation, or rental properties where the rental income offsets most of the carrying cost.
From the borrower's perspective, the premium rates are nearly identical across the three providers for standard files. The practical difference emerges in edge cases — a file that CMHC declines may be approved by Sagen or Canada Guaranty. The lender, not the borrower, chooses which insurer to use. A mortgage broker who understands the underwriting nuances of each insurer can help route your file to the one most likely to approve it.
The three mortgage insurers follow the same federal rules but differ in underwriting flexibility — a file declined by one may be approved by another.
The insured mortgage rate advantage — when paying the premium is worth it
There is a counterintuitive aspect to mortgage default insurance: insured mortgages often qualify for lower interest rates than uninsured mortgages. Because the lender faces zero credit risk on an insured mortgage (the insurer covers the loss if you default), lenders price insured mortgages more aggressively — typically 0.15% to 0.40% below equivalent uninsured rates.
This rate advantage means the effective cost of the insurance premium is lower than the sticker price. On a $500,000 mortgage, a 0.25% rate advantage saves approximately $6,250 in interest over a five-year term. If the CMHC premium was $19,000, effectively $6,250 of that is recovered through lower rates — reducing the net cost to approximately $12,750.
For some borrowers, the optimal strategy is to put down just under 20% (say 15-19%), pay the insurance premium, and capture the lower insured rate — rather than stretching to 20% down and paying a higher uninsured rate. The breakeven calculation depends on the rate spread, the premium rate, and your expected holding period. A broker can model both scenarios.
An insured mortgage with 15% down often carries a lower interest rate than an uninsured mortgage with 20% down — the rate savings can partially offset the insurance premium.
Frequently asked questions
What is mortgage default insurance and who pays for it?
Mortgage default insurance protects the lender if the borrower defaults. The borrower pays the premium — typically added to the mortgage balance — but the insurance protects the lender, not the borrower. It is mandatory for all mortgages with less than 20% down payment. The three providers in Canada are CMHC, Sagen, and Canada Guaranty.
How much does CMHC mortgage insurance cost?
CMHC premiums range from 2.8% to 4.0% of the mortgage amount depending on your loan-to-value ratio. At 95% LTV (5% down), the premium is 4.0%. At 90% LTV (10% down), it is 3.1%. At 85% LTV (15% down), it is 2.8%. For example, a $475,000 mortgage with 5% down carries a $19,000 premium. Extended amortizations over 25 years add a 0.20% surcharge.
Can I avoid paying mortgage default insurance?
Yes, by making a down payment of 20% or more of the purchase price. Mortgages with 20%+ down are considered 'conventional' and do not require default insurance. You can also avoid insurance by purchasing a property for $1 million or more — these properties are not eligible for insured mortgages, so you must put at least 20% down regardless.
Is there PST on CMHC mortgage insurance premiums?
Provincial sales tax applies to mortgage insurance premiums in three provinces: Ontario (8% PST), Quebec (9% QST), and Saskatchewan (6% PST). This tax is due upfront at closing in cash — it cannot be added to the mortgage. All other provinces and territories do not charge PST on mortgage default insurance premiums.
Does mortgage default insurance protect me as the borrower?
No. Mortgage default insurance protects the lender, not the borrower. If you default, the insurer pays the lender — but you still lose the home, suffer the credit damage, and may face a deficiency judgment if the sale proceeds do not cover the full mortgage balance. This is completely separate from mortgage life insurance or creditor insurance, which pays off the mortgage if you die or become disabled.
What is the difference between CMHC, Sagen, and Canada Guaranty?
CMHC is a federal Crown corporation and the largest mortgage insurer with the strictest underwriting guidelines. Sagen (formerly Genworth Canada) and Canada Guaranty are private insurers that sometimes offer more flexible underwriting for self-employed borrowers or non-traditional files. Premium rates are nearly identical across all three for standard mortgages. The lender — not the borrower — chooses which insurer to use.
Turn this guide into a mortgage plan
Calculate your CMHC premium, compare insured vs uninsured scenarios, or book a consult with a Pragmatic Mortgage broker.
