WHAT IS MORTGAGE DEFAULT INSURANCE?

Mortgage default insurance is a mandatory cost when you buy a home with less than 20% down, and many buyers don’t realize how it works or why it’s required. Understanding it upfront helps you budget properly and avoid surprises.

Here’s what it really means for you.

1️⃣ When mortgage default insurance is required

Mortgage default insurance applies when your down payment is below 20%.

✔️ required for owner-occupied homes under 20% down

✔️ sometimes required for rentals under 35% down

✔️ allows smaller down payments to qualify

It makes homeownership possible for buyers with limited savings.

2️⃣ Why home prices affect down payment requirements

Higher home prices make saving 20% harder for most people.

✔️ rising markets increase required down payments

✔️ many buyers fall short of 20%

✔️ insurance helps bridge the gap

Default insurance allows entry into the market sooner despite high prices.

3️⃣ Conventional vs. high-ratio mortgages

A 20% down payment creates a conventional mortgage and lowers lender risk.

✔️ more equity

✔️ stronger borrower position

✔️ fewer restrictions

With 5%–19.99% down, the mortgage becomes high-ratio and requires insurance.

4️⃣ Why lenders require mortgage default insurance

Insurance protects lenders from financial loss if a borrower defaults.

✔️ covers potential shortfall

✔️ reduces lender risk

✔️ supports higher loan-to-value lending

This protection helps lenders approve buyers who don’t have large down payments.

5️⃣ Who provides mortgage default insurance in Canada

There are three major insurers offering coverage to lenders.

✔️ CMHC (government-backed)

✔️ Sagen/Genworth

✔️ Canada Guaranty

The lender arranges the insurance, but the cost is added to your mortgage.

6️⃣ How mortgage default insurance premiums are charged

Premiums depend on how much you borrow and your down payment size.

✔️ higher LTV = higher premium

✔️ cost added into mortgage balance

✔️ paid over time through monthly payments

This helps keep upfront costs lower for homebuyers.

💬 Final Thought

Mortgage default insurance increases your cost, but it also opens the door to buying a home sooner with a smaller down payment. Knowing how it works helps you plan properly and avoid last-minute surprises.

If you want to calculate your premium or compare down payment options, message The Frontline Mortgage Group. We’ll walk you through every step.