Mortgage Default Insurance

Mortgage Default Insurance is required by Lenders if you’re buying a home with less than a 20% down payment or attempting to finance your home with a mortgage greater than 80% of the property’s value. (i.e. a High-Ratio Mortgage).

This insurance compensates mortgage lenders for losses they may incur if you were to stop making payments and default on your Mortgage (see Mortgage Default).

Who provides this insurance? Mortgage Default Insurance is offered by a number of mortgage insurers, primarily CMHC, Sagan, and Canada Guaranty.  While this insurance protects your lender from losing money if you default, it also has benefits to you as the borrower because it allows you to buy a home with a down payment as low as 5%.

There are a few things that are important for you to know when it comes to Mortgage Default Insurance:

• It is only available on residential homes valued under $1,000,000.

• It does not cover your mortgage payment if you are unable to pay.

• It only provides protection to the Lender. It does not provide any protection for the Borrower.

• When a Borrower has a Down Payment of less than 20%, the premium for the insurance is paid by the Borrower.

• To be eligible for Mortgage Default Insurance you must have a Down Payment of at least 5% of the home’s value.

• The insurance premium can be added to your Mortgage Principal, so you do not have to pay it in full upfront. This way, it is paid monthly over the amortization term of your mortgage. You will pay interest on the premium over time at the Mortgage Rate.

• To be eligible for Mortgage Default Insurance, a Borrower will have to meet their lender’s Underwriting qualifications as well as the Underwriting qualifications of the insurer.