Mortgage Default Insurance Explained: CMHC, Sagen and Canada Guaranty
Mortgage default insurance protects the lender, not you, if a borrower cannot repay their mortgage. It is required whenever you buy a home with less than 20 percent down. In exchange for that protection, lenders offer their best rates on these insured mortgages, which is why putting less down is not the disadvantage many people assume it is.
Early in my career I worked directly in mortgage default insurance, so this is a topic I know from the inside. Here is what every BC buyer should understand about it.
Part of my background before brokering was in mortgage default insurance and lender training. When I explain how the insurers think, it is because I used to work in that world.
What it is, in plain terms
When your down payment is under 20 percent, the lender takes on more risk. Default insurance covers the lender against a loss if the mortgage defaults. You pay the premium, but the protection is theirs. The trade-off is real and in your favour: insured mortgages qualify for the lowest available rates, because the lender's risk is covered.
When you need it
You need default insurance any time you buy with less than 20 percent down on a home priced under 1.5 million dollars. With 20 percent down or more, your mortgage is conventional and no insurance is required. There are also insured options for refinances and certain rental purchases, but the classic case is the buyer putting 5 to 19 percent down.
The three insurers
Canada has three mortgage default insurers. They do similar work with small differences in policy and niche programs.
| Insurer | What to know |
|---|---|
| CMHC | The federal, government-owned insurer. Strong on programs like the newcomer and self-employed policies. |
| Sagen | A private insurer, often flexible on certain borrower and property scenarios. |
| Canada Guaranty | The other private insurer, with competitive niche programs of its own. |
You usually do not choose the insurer, the lender does. But a broker who knows each insurer's guidelines can steer a tricky file toward the lender whose insurer will say yes.
WHAT IT COSTS
The premium is a percentage of your mortgage amount, and it rises as your down payment shrinks. The smaller your down payment, the higher the premium tier. There is also a small surcharge if you choose a 30-year amortization. The premium is almost always added onto your mortgage rather than paid in cash, so it is spread across your payments. In BC, provincial sales tax on the premium is paid up front at closing.
THE TAKEAWAY
Default insurance is not a penalty. For most first-time and move-up buyers in the Fraser Valley, it is the tool that makes buying possible sooner and unlocks the best rates while you do it. The real question is not how to avoid it, it is whether an insured or conventional structure serves your goals better. That is exactly the kind of thing I will map out with you.
Not sure if you need default insurance, or want to compare?
I will run both an insured and a conventional scenario for you so you can see the real numbers side by side, then choose with confidence.
Cynthia Dreger, Mortgage Broker, Langley BC
Call or text 604-787-5136
Frequently asked questions
Can I avoid paying mortgage default insurance?
Yes, by putting down 20 percent or more of the purchase price. At that point your mortgage is considered conventional and no default insurance is required. Below 20 percent, the insurance is mandatory on an insured mortgage, though the premium can be added to your mortgage rather than paid up front.
Is the mortgage default insurance premium refundable?
Generally no, the premium is not refundable. However, if you buy an energy efficient home or make qualifying green improvements, CMHC and Sagen offer partial premium rebates. There can also be premium savings when you port your insured mortgage to a new property, which is worth reviewing with your broker.
CYNTHIA DREGER
