How Is Mortgage Insurance Priced and Paid?

Mortgage insurance can be an important part of securing a home, especially if your down payment is less than 20 percent. But many homebuyers are surprised by how this cost is calculated and how it affects their monthly mortgage payments. Whether you’re budgeting for your first home or refinancing an existing loan, it helps to understand exactly how mortgage insurance is priced and paid.

This becomes especially important when comparing mortgage options or evaluating whether to make a larger down payment. Knowing how the premium works helps you see the full financial picture of your loan.

What Affects the Cost of Mortgage Insurance?

Mortgage insurance premiums are not one-size-fits-all. The amount you pay depends on several key factors, most importantly the size of your down payment and the total loan amount. The smaller your down payment, the higher the risk to the lender, and the more you’ll pay for insurance.

The premium is typically calculated as a percentage of the mortgage amount. Here’s a simplified guide:

This percentage applies to the total mortgage amount, not just the down payment difference. For example, on a $400,000 mortgage with a 10 percent down payment, the insurance premium could be $12,400 (3.10 percent), added to your total loan.

Other factors that can influence the cost include:

• The length of the mortgage term

• The type of employment and income verification provided

• Whether the property is a primary residence or rental

• The type of lender used (e.g., bank, credit union, or alternative lender)

How Is the Premium Paid?

Most commonly, the mortgage insurance premium is added to your mortgage balance and repaid gradually as part of your monthly mortgage payments. This keeps the upfront cost low and spreads it out over time.

Let’s say your mortgage is $400,000 and the insurance premium is $12,400. Your total mortgage would become $412,400, and your payments would be based on this higher amount.

In rare cases, you may choose to pay the premium as a lump sum at closing. This reduces your mortgage balance slightly, but requires more cash upfront — a challenge for many first-time buyers.

Is Mortgage Insurance Tax Deductible?

In Canada, mortgage insurance premiums are not tax deductible for personal residences. However, if the mortgage is used to purchase a rental property, some or all of the premium may be deductible as a carrying cost.

Speak with a tax advisor or accountant to determine whether your situation qualifies.

Can the Premium Be Reduced?

You can lower your mortgage insurance cost by:

• Making a larger down payment (even 1 or 2 percent more can reduce the premium rate)

• Choosing a shorter amortization period

• Working with a traditional lender to avoid surcharges from alternative lenders

• Improving your credit and documentation to access preferred rates

If you are close to the 10 percent or 15 percent down payment thresholds, it may be worth delaying your purchase slightly to reduce your long-term insurance costs.

Why This Cost Matters for Your Budget

Mortgage insurance adds to your total borrowing amount and monthly payments, which can affect how much home you can afford. It also impacts the long-term cost of your mortgage, since interest is paid on the premium as part of the loan balance.

You might think about this cost the next time you review your pre-approval, consider a lump-sum payment, or reassess how much you want to put down. Understanding how mortgage insurance is priced and paid gives you the tools to make more confident, informed decisions about your home financing.