CMHC Insurance Explained: Canadian Buyers Guide 2024

What CMHC Insurance Actually Is

CMHC insurance — more precisely, mortgage default insurance — is a policy that protects the lender, not you, if a borrower stops making payments. In Canada it is mandatory on any mortgage where the down payment is less than 20% of the purchase price. These are known as high-ratio or insured mortgages. The insurance is what makes low-down-payment lending possible: because the lender's risk is covered, they can approve buyers who put down as little as 5%.

The Canada Mortgage and Housing Corporation (CMHC) is the federal Crown corporation that pioneered this coverage, which is why the whole category is often called "CMHC insurance." Two private insurers — Sagen and Canada Guaranty — offer effectively the same product, and your lender chooses which one to use.

When You Need It

You need default insurance when your down payment falls below 20%. The minimum-down-payment structure for owner-occupied purchases works in tiers:

• 5% on the portion of the price up to $500,000
• 10% on the portion between $500,000 and the insured maximum
• 20% once the price exceeds the insured maximum — above that ceiling, default insurance simply isn't available

Insured mortgages also come with conditions: the property must be owner-occupied or a qualifying rental, and the amortization is capped for most insured borrowers (recent federal changes have extended it in specific first-time-buyer and new-build cases). If you put down 20% or more, your mortgage is conventional and no default insurance is required.

How the Premium Works

The premium is calculated as a percentage of the loan amount, and that percentage rises as your down payment shrinks. The logic is simple: the less equity you have, the more risk the insurer takes on, so the higher the premium. A buyer putting down 5% pays a materially higher rate than one putting down 15%.

Key things to understand about the premium:

• It is added to your mortgage balance and amortized over the life of the loan — you don't pay it as a lump sum up front.
• Because it is rolled in, you pay interest on the premium for the full term, so it costs more than the headline figure suggests.
• In most provinces the premium itself is exempt from sales tax, but a few — including Ontario, Quebec, and Saskatchewan — charge provincial tax on it, and that tax must be paid up front at closing.

The Upside of an Insured Mortgage

It's easy to see default insurance as a pure cost, but it buys two real advantages. First, it lets you enter the market years sooner than you could if you had to save a full 20%. Second — and this surprises many buyers — insured mortgages often carry the lowest advertised rates. Because the lender's risk is covered, they price insured deals aggressively. A buyer with 20% down on an uninsured (conventional) mortgage can sometimes see a slightly higher rate than an insured buyer with 5% down.

Weighing It Against a Bigger Down Payment

The decision usually comes down to timing versus cost. Putting down 20% avoids the premium entirely and eases cash flow, but waiting to save it exposes you to years of rising home prices. Putting down 5% to 19% means paying the premium, but it gets you building equity now — often the better trade in an appreciating market. There's no universal answer; it depends on your local market, your savings rate, and how long you'd otherwise have to wait.

The Bottom Line

Default insurance is a normal, well-understood part of buying a home in Canada with less than 20% down. It protects the lender, it's priced by your loan-to-value, it's added to your mortgage, and it frequently comes bundled with the sharpest rates on the market. The right question isn't "how do I avoid it" but "does buying now with insurance beat waiting to save more" — and that's exactly the kind of scenario a broker can model with you.

Ready to see the numbers for your situation? Compare current rates or run your budget through our mortgage calculators.