One of the biggest roadblocks for first time homebuyers is saving the downpayment. With the burdens of paying rent, student loans and other expenses it is not realistic to expect you can save 20% of a home’s purchase price for your downpayment.

What is Mortgage Loan Insurance?

Mortgage Loan Insurance is just that — insurance from a trusted third party, which protects lenders against default on a mortgage loan by a homeowner. In Canada, Mortgage Loan Insurance is generally required whenever a homebuyer has less than 20% of the purchase price available as a down payment.

Because the lender is protected, they are able to offer mortgage financing even if you have a smaller down payment, at a rate of interest that is comparable to the lower rates typicallyreserved for homebuyers with a larger down payment. To obtain Mortgage Loan Insurance, an insurance premium must be paid based on the total amount of the loan (the purchase price minus the down payment). This premium can be paid in a lump sum, or added to your mortgage and included in your monthly payments. The latter is normally the case.

How Much Does it Cost?

In general, the larger your down payment, the lower your premiums will be. The exact premium will be calculated when you apply for a mortgage. But to give you a general idea, the current Mortgage Loan Insurance premiums charged by CMHC are:

Size of down payment (as % of purchase price)* Insurance premium (as % of total loan)**
15% to less than 20%                                                                                                                     1.75%
10% to less than 15%                                                                                                                     2.00%
5% to less than 10%                                                                                                              2.75% or 2.90%***

* Mortgage Loan Insurance from CMHC is also available for loans of less than 80% of the purchase price.
** Premiums in Ontario and Quebec are subject to provincial sales tax. The provincial sales tax cannot be added to the loan amount.
*** The rate of 2.90% is for mortgage loans where the down payment is funded through non-traditional sources, such as borrowed funds, gifts, 100% sweat equity or lender cash back incentives.

For an additional premium, CMHC Mortgage Loan Insurance is also available for loans with extended amortization periods. The additional premiums are:

Loan with amortization period greater than 25 years and up to 30 years: +0.20%
Loan with amortization period greater than 30 years and up to 35 years: +0.40%

For example, if you are buying a $200,000 home with a down payment of $10,000 (or 5% of
the purchase price) amortized over 25 years, the Mortgage Loan Insurance premium would
be 2.75% of your $190,000 loan, or $5,225. If you chose to extend the amortization to 30
years, an additional premium of 0.2% or $380 would be charged.

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