Buying a home with less than 20% down is how many Canadians get their foot in the door, but it comes with an extra cost that often catches first-time buyers by surprise: mortgage default insurance. Most people simply call it CMHC insurance, after the Canada Mortgage and Housing Corporation, the federal Crown corporation that provides much of it. Understanding how it works, what it costs, and how it affects your budget can help you make a more confident decision before you start shopping for a home.
How CMHC Mortgage Insurance Works
Mortgage default insurance is required on any home purchase in Canada where the down payment is less than 20% of the price. It protects the lender, not the buyer, if the borrower stops making payments, which lets lenders offer buyers with smaller down payments competitive interest rates. CMHC is one of three insurers in Canada, alongside Sagen and Canada Guaranty, and all three charge the same premium rates.
The premium is calculated as a percentage of your mortgage amount, not the purchase price, and it shrinks as your down payment grows. Putting 5% to 9.99% down carries a 4.00% premium, 10% to 14.99% down carries 3.10%, and 15% to 19.99% down carries 2.80%. On a $600,000 home with 5% down, for example, the $570,000 mortgage would come with a premium of $22,800.
Most buyers don’t pay the premium up front; it is added to the mortgage balance and repaid over the life of the loan, so you also pay interest on it. In Ontario, however, provincial sales tax on the premium must be paid in cash at closing, so include it in your closing-cost budget.
There are also limits on which homes qualify. Insured mortgages are available on purchase prices below $1.5 million, and the minimum down payment is 5% on the first $500,000 and 10% on the portion above that. First-time buyers and buyers of newly built homes can also choose an amortization of up to 30 years on an insured mortgage, though a small premium surcharge applies.
Before committing to a price range, it’s worth running the numbers on a few scenarios. Comparing what your monthly payment looks like at 5%, 10%, and 15% down shows clearly how much a larger down payment can save you over time. If you’re moving up from a property you already own, knowing how to sell a home strategically can free up enough equity to reach a lower premium tier.
CMHC mortgage insurance isn’t a penalty; it’s the tool that makes homeownership possible for buyers who haven’t saved a full 20% down payment. Knowing how the premium is calculated, when the tax is due, and which properties qualify helps you plan accurately and avoid surprises at closing. With a clear picture of the costs, you can move forward with your home search knowing exactly what to expect.