Mortgage Loan Insurance: Requirements and Options
Learn how mortgage loan insurance works, when it’s required, and how Optimize helps you navigate its impact on your home financing strategy
What Is Mortgage Loan Insurance?
Mortgage loan insurance, often referred to as default insurance, protects the lender in case a borrower fails to meet their mortgage payment obligations. While it doesn’t provide direct protection to you as the borrower, it plays a critical role in enabling homeownership for buyers who cannot meet certain down payment thresholds.
In Canada, if your down payment is less than 20% of the property’s purchase price, you are required by law to obtain mortgage loan insurance. This allows lenders to offer mortgages to buyers with smaller down payments while safeguarding themselves against default risk.
At Optimize, we ensure you understand when insurance applies, how much it costs, and how it affects your overall borrowing plan—not just your monthly payments.
Important: If your down payment is under 20%, mortgage loan insurance is mandatory in Canada. It is not optional, and the premium can significantly affect your total loan amount and amortization.
Why Is Mortgage Loan Insurance Required?
Mortgage loan insurance exists to:
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Protect lenders from potential losses if a borrower defaults.
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Allow homebuyers to access financing with down payments as low as 5%.
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Support housing market stability by reducing lender risk on high-ratio mortgages.
Without this insurance, lenders would either refuse financing to low-down-payment borrowers or charge significantly higher interest rates to offset the risk.
For you, it’s a trade-off: while it adds an extra cost, it enables earlier entry into the housing market by reducing upfront capital requirements.
Who Provides Mortgage Loan Insurance in Canada?
In Canada, mortgage loan insurance is primarily offered by:
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Canada Mortgage and Housing Corporation (CMHC): A federal Crown corporation.
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Sagen (formerly Genworth Canada) and Canada Guaranty: Private insurers operating under federal regulations.
All three providers follow similar guidelines, though premiums and underwriting criteria may vary slightly.
How much does mortgage loan insurance cost
The cost of mortgage loan insurance is calculated as a percentage of your mortgage amount and depends on your loan-to-value ratio (LTV):
| Down Payment % | Loan-to-Value Ratio | Estimated Insurance Premium (%) |
|---|---|---|
| 5% to 9.99% | 90.01% to 95% | 4.00% |
| 10% to 14.99% | 85.01% to 90% | 3.10% |
| 15% to 19.99% | 80.01% to 85% | 2.80% |
Most borrowers choose to add the premium to their mortgage principal, spreading the cost over the life of the loan. Alternatively, it can be paid upfront in a lump sum.
Tip: Even a slightly higher down payment can lower your insurance premium. Use that knowledge when setting savings goals or negotiating your home budget.
When Does Mortgage Loan Insurance Not Apply?
Mortgage loan insurance is generally not required if:
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You make a down payment of 20% or more.
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You refinance your home beyond an 80% loan-to-value ratio (subject to lender rules).
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The property value exceeds certain limits (e.g., $1 million+ purchases typically require uninsured mortgages).
However, some lenders may still choose to insure conventional mortgages for their own risk management, even when not required by regulation. This is known as an insurable mortgage.
Optimize helps you understand these distinctions so you know whether insurance applies and how it affects your rate and terms.
How Mortgage Loan Insurance Affects Your Mortgage
While mortgage loan insurance increases your borrowing cost, it also enables:
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Lower down payment entry into the housing market.
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Access to competitive interest rates, since lenders have reduced risk.
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Flexibility for first-time buyers and those with limited savings.
At Optimize, we help you weigh the cost of insurance against the benefits of early homeownership, ensuring your decision aligns with your overall financial plan.
Why This Knowledge Matters to You
Understanding mortgage loan insurance prevents surprises during the home buying process. More importantly, it helps you make informed choices about:
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How much to save for a down payment.
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How mortgage insurance affects your total borrowing cost.
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How to balance early homeownership with long-term affordability.
Optimize ensures this isn’t just a checkbox requirement—we help you see how mortgage insurance fits into your broader home financing strategy, giving you clarity and confidence.