Have you ever used one of those mortgage calculators? Most banks offer them online, where you can plug in your down payment, property purchase price, and interest rate. 

You then check your savings account, and a 20% down payment just isn’t in the cards. So you plug a 5% down payment into the calculator. 

But the monthly mortgage estimate it spits out seems a lot higher than it should be - Say hello to mortgage insurance.

In Canada, you’re on the hook for mortgage insurance if your down payment is less than 20%. Fun fact: 35% of Canadian residential mortgages are insured. 

Let’s get you up to speed on the different types of mortgage insurance and what it looks like on your bank statement. 

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What is mortgage insurance?

Say you lose your job and can’t make your mortgage payments. Of course, lenders take that risk with every mortgage, and homebuyers make up for it with interest. 

But if you put less than 20% down, you might appear at higher risk for default (not making your monthly mortgage payments). 

Mortgage insurance protects you or your lender if you default on your monthly payments. But these two different insurances protect different interests: 

Mortgage default insurance

Mortgage default insurance protects your lender if you default. It’s required for all Canadian mortgages with down payments under 20%, and ranges in price depending on your mortgage value and other factors.

The premium is added to your mortgage, and you’ll also pay interest on it. 

But can you shop rates from different insurers? Not really. It’s at the lender’s discretion, and they usually go with the CMHC mortgage insurance (Canadian Mortgage and Housing Corporation). 

The worst part about mortgage default insurance is that it doesn’t even protect you, the borrower. The lender’s covered if you default, but the insurance company will come after you with legal proceedings and payment enforcement. 

Eligibility: 

• The amortization period can’t exceed 25 years.
• A minimum down payment of 5% is required. 
• Not applicable to homes worth over $1,000,000 (you’ll need a 20% down payment, stat). 
• Down payment funds can’t be borrowed. 
• Your credit score must be 600+. 

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Mortgage protection insurance

On the flip side, mortgage protection insurance covers you, the borrower, if you default on your mortgage payments for specific reasons. 

It’s pretty much like life insurance. If you die or develop a life-altering disability that hinders your ability to work and make payments, mortgage protection insurance protects you and your loved ones. 

Remember, mortgage protection insurance isn’t actually mandatory. You’ll need to purchase it separately; however, check your employment benefits. If there’s a life insurance package, mortgage protection insurance might be included. 

Eligibility: 

• Depends on the insurance provider, but most Canadian mortgage borrowers, cosigners, and guarantors are eligible. 
• Rates vary depending on the type and value of coverage.

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Average costs for mortgage insurance

So, how much is mortgage insurance? You’re looking at a couple to a few hundred dollars per month. 

While the CMHC touts lower interest rates as a benefit of mortgage insurance, the extra dough on your monthly expenses isn’t as modest as they let on.

Here’s a quick look at mortgage default insurance costs for different mortgage values: 

• Up to 65% (35% down payment): 0.6%
• 80.01% to 85% (15-20.9% down payment): 2.80%
• 90.01 to 95% (5%-9.9% down payment): 4%

These are standard rates, but lenders might demand higher premiums for specific scenarios, such as self-employed borrowers. 

Bottom line? Mortgage default insurance costs between 2.80%-4.0% of your mortgage value. 

Let’s say you buy a home worth $900,000, and you put 5% down. Your mortgage value is $855,000, and your mortgage insurance is $34,200 plus interest (and sales tax, if you’re in Ontario). 

Mortgage protection insurance terms and pricing aren’t as universal. You’ll need to contact insurance companies for more information. 

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Lower your monthly costs by reaching a 20% down payment 

Mortgage default insurance is only mandatory with down payments under 20%. In Ontario, you’re on the hook for taxes and interest on top of mortgage insurance, easily adding a few hundred dollars per month to your monthly payment.