This is insurance that the lender takes out on you in case you don’t pay your mortgage and they have to come and take your house away. This is called a foreclosure. If they have to foreclose on you and they lose money, then they will go to the insurer and make a claim.

If you’ve got less than 20% down then getting an approval from one of the insurers is a mandatory step.
CMHC, Canada Guaranty and Genworth are the three companies in Canada that provide mortgage default insurance for the lenders. They charge a premium for the coverage and it’s a one time cost that is typically added in to your loan amount included in your mortgage. You do have the option of paying it up front if you’d like so that it’s not included in your loan. The cost is based on risk and that risk is determined by:

  • how much you have as a down payment
  • where the down payment money is coming from
  • how long you are taking to repay the loan
  • how your income is determined
  • whether or not you have an prior coverage in place that would reduce a premium on a new property

In most cases, you can avoid the insurer premiums with 20% down. However, there are some cases where the lender would still want the coverage in place even with 20% down.

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