Mortgage Insurance in Canada

If the down payment on your mortgage is less than 20%, you are required to get mortgage insurance in Canada. Three big insurance providers in Canada are: Canadian Mortgage and Housing Corporation (commonly known as CMHC), Genworth Financial and Canada Guaranty Mortgage Insurance.

Mortgage insurance is also known as Default Mortgage Insurance. Do not confuse Mortgage Insurance with home insurance or balance protector insurance. Mortgage insurance, in fact, insures the lender, not the customer or the homeowner. The mortgages with less than 20% in down payment have a greater risk to lenders, that is why they require insurance as a safety net in the event if the mortgage defaults.

Does mortgage insurance only benefit the lenders?

One might think that the mortgage insurance only benefit the lenders because its premium is paid by customers, just to protect the lenders. It is partially true that the mortgage insurance is for lenders, but it benefits customers too.

Some of the benefits mortgage insurance has for mortgage customers are:

  • Because of default insurance, the risk to lenders decreases, resulting in decreased Canadian mortgage rates. If there was no mortgage insurance requirement, it would have more risk to lenders and they would charge high interest rates to compensate the risk.
  • Customers can get the mortgage insurance and payless than 20% down payment. Hence, mortgage insurance can let you become homeowner faster. Due to mortgage insurance, you can be a homeowner by paying as low as 5% down payment.
  • No lump sum payment is required to pay the mortgage insurance. Mortgage insurance can be added to the mortgage balance and paid back over the amortization period.