Mortgage Insurance (CMHC Insurance)
Mortgage default insurance, also referred to as CMHC insurance, is mandatory in Canada for down payments of less than 20% of the purchase price. Mortgage default insurance protects lenders in the event a borrower stops making payments and defaults on their mortgage loan. CMHC insurance premiums are paid for in full by the borrower at the start of their mortgage.
Although mortgage default insurance costs homebuyers 2.8% to 4.0% of their mortgage amount, it does allow Canadians, who might not otherwise be able to purchase homes, access to the Canadian real estate market. Without it, mortgage rates would be higher, as the risk of default would increase. Lenders are able to offer lower mortgage rates when mortgages are protected by mortgage default insurance, because the risk of default is passed along to the mortgage insurer.