Mortgage default insurance, often referred to by the name of one of its providers, CMHC Insurance, is a key component of the home buying process in Canada, especially for those with smaller down payments. This insurance is mandatory for homebuyers who can't afford a down payment of 20% of the property's value. Its primary function isn't to protect the buyer but to safeguard the lender in the event that the buyer fails to meet mortgage payment obligations. This arrangement encourages financial institutions to extend mortgages to buyers with less substantial down payments.
The cost of this insurance is a percentage of your mortgage amount and varies with the size of your down payment. Specifically, for down payments ranging from 5% to 9.99%, the insurance cost is 3.6% of the mortgage. For those making down payments between 10% and 14.99%, the cost drops to 2.40%, and for down payments from 15% to 19.99%, the insurance rate is 1.80%.
It's important to note that mortgage default insurance is not available for properties priced over $1 million. Therefore, buyers of such high-value homes must be prepared to make a down payment of at least 20%.