Is Mortgage Insurance Mandatory When Buying a Home?
Learn when you’re required to pay for mortgage insurance and how it affects your purchase plan
If you’re planning to buy a home, especially as a first-time buyer, you may be surprised to find that mortgage insurance isn’t optional in certain cases. In Canada, mortgage insurance is required when your down payment is less than 20 percent of the home’s purchase price — but it’s not for your protection. It’s designed to protect the lender.
This becomes especially important when you’re budgeting for closing costs and determining how much home you can afford. Understanding whether mortgage insurance is mandatory helps you plan more effectively and avoid unexpected expenses during the mortgage process.
When Is Mortgage Insurance Required?
Mortgage insurance, also called mortgage default insurance, is mandatory for high-ratio mortgages — that is, when the down payment is between 5 and 19.99 percent. In these cases, your lender must obtain insurance through providers such as the Canada Mortgage and Housing Corporation (CMHC), Sagen, or Canada Guaranty.
This insurance protects the lender in case you default on the mortgage. Because the lender is taking on more risk with a smaller down payment, the insurance offsets that risk.
Tip: If you’re putting down less than 20 percent, the cost of the insurance premium will be added to your mortgage, which slightly increases your total loan amount and monthly payments.
When Is It Not Required?
If you make a down payment of 20 percent or more, mortgage insurance is not typically required. This is known as a conventional mortgage. However, there are a few exceptions:
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You are self-employed with limited documentation
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You have a lower credit score or limited credit history
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The property is in a rural area or has unique characteristics
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The lender is applying extra caution based on their internal criteria
In these scenarios, some lenders may still request mortgage insurance as a condition of approval, even if the loan-to-value ratio is under 80 percent.
Note: You do not choose the insurer or negotiate the premium. The lender arranges the insurance and passes the cost on to you.
How Much Does Mortgage Insurance Cost?
The premium is calculated as a percentage of the mortgage amount and is based on your down payment size. Here is a simplified view:
| Down Payment | Estimated Premium Rate |
|---|---|
| 5% to 9.99% | 4.00% |
| 10% to 14.99% | 3.10% |
| 15% to 19.99% | 2.80% |
The premium is usually added to your total mortgage and repaid over time as part of your monthly payments.
Why Do Lenders Require It?
Mortgage insurance reduces the lender’s risk of financial loss in case the borrower defaults. It enables them to approve higher-risk mortgages, which helps more Canadians enter the housing market with lower down payments.
While it may seem like an added cost, mortgage insurance makes homeownership more accessible — especially in expensive housing markets.
Planning Ahead With This Cost in Mind
If you know you will be putting down less than 20 percent, include the mortgage insurance premium in your financial planning. It slightly increases your borrowing costs, but it also gives you access to the market sooner and can help you lock in a home before prices rise further.
If you are close to the 20 percent threshold, consider whether saving a bit more to avoid the premium makes sense in your situation. A slightly larger down payment can save thousands in insurance costs over the life of the mortgage.
Mortgage insurance is not optional in many home purchases, but with careful planning, it does not have to be a barrier. Instead, it becomes one part of a larger strategy to make homeownership achievable and sustainable.