All the Numbers

Mortgage default insurance

From the All the Numbers wiki · Housing

A lender will not write a mortgage for more than 80% of a home's price unless it is insured against default. The borrower pays the premium, even though the insurance protects the lender. The premium is one of the costs of a first purchase that a small down payment adds.

The rules

  • Required when the down payment is under 20% of the price.[1]
  • Minimum down payment: 5% of the first $500,000 of the price[2][3] and 10% of the rest.[4] A home of $1,500,000 or more needs 20% down, so it cannot be insured.
  • Price cap: the price must be strictly below $1,500,000.[5]
  • Maximum loan against the price (loan-to-value): 95% for an owner-occupied home of one or two units, which is where the 5% minimum comes from, and 90% for an owner-occupied building of three or four units.[6][7] A triplex or fourplex therefore needs at least 10% down.
  • Premium, as a share of the loan before the premium. The tiers follow the loan-to-value ratio, and the full schedule also has lower tiers (60 to 240 basis points) for down payments of 20% or more:[8][9]
Down payment Premium
15% to 19.99% 2.80%[10]
10% to 14.99% 3.10%[11]
5% to 9.99% 4.00%[12]
  • 30-year amortization: 0.20 percentage points more, and only for a first-time buyer or a newly built home.[13][14] The standard maximum is 25 years.[15]
  • Ontario retail sales tax: 8% of the premium. It cannot be added to the loan, so it is paid in cash on closing day.[16]

What the engine does

  • Adds no insurance at 20% down or more.
  • Finds the premium tier from the loan-to-value ratio, adds the premium to the mortgage, and charges the 8% tax on it as part of the cash needed at closing. The larger mortgage then sets the payment and is the loan used in the qualification test.
  • Refuses a down payment under the minimum, and an insured purchase at $1,500,000 or more.
  • Applies the 30-year surcharge only when the buyer is marked as a first-time buyer.
  • Treats a purchase closing after 2026 under the 2026 rules, unchanged, and says so in the plan's assumptions. The caps and tiers are policy and may change.

What it deliberately does not

  • The 4.50% premium for a down payment that is itself borrowed (a non-traditional down payment).
  • Insurance on a three- or four-unit building. The 90% limit above is in the rules the engine holds, but All the Numbers prices a home as one unit, or two when a suite is planned. Its purchases are all owner-occupied resale homes.
  • The lower premiums that apply to loans of 80% or less when a lender insures voluntarily, and any refund of the premium on a transfer or refinance.
  • New-build GST/HST.

How much cash a purchase needs, including this tax, is part of where the down payment comes from; the other closing tax is land transfer tax.

See also

  • Buying a cottage · A cottage is a second home for you and your family, kept alongside the home you live in. It can be bought with as little as 5% down if it is usable all year, or 10% if it is seasonal, but first-time buyer help, the Home Buyers' Plan and the FHSA cannot pay for it.
  • Closing costs and the cash to close · The cash a buyer pays on closing day is the down payment, the land transfer tax after any first-time buyer refund, the taxes and fees on the purchase, and one amount for legal and inspection costs that starts at $3,000. Adjustments are not worked out unless they are added to that amount.
  • How a mortgage payment is worked out · A fixed-rate Canadian mortgage compounds its interest twice a year, not monthly, so the monthly payment comes from a rate slightly lower than the quoted rate divided by twelve. The default rate is 4.27%, and the rate stays fixed for the whole amortization.
  • Interest on borrowed money · Interest is deductible against rent only for money used to earn income from property, judged by what the money is used for now and not by what secures the loan. A refinance keeps the use of the loan it replaces, and a repayment reduces the deductible and non-deductible parts together.
  • Land transfer tax · Ontario charges a tax on the price of a home, rising from 0.5% to 2.5% in brackets, and Toronto adds a second one of its own. A first-time buyer gets a refund of up to $4,000 from Ontario and $4,475 from Toronto.
  • Renting out a suite · Rent from part of your home is taxable income. The costs of the whole home are deductible only for the rented share, mortgage principal and land transfer tax are not deductible, and a loss offsets other income when the rental is run to earn money. A lender may count part of the rent when you apply.
  • Renting versus buying · All the Numbers compares a plan that buys a home with the same plan that never buys, and the money the home would have taken stays in your accounts and is saved like any other leftover cash. It shows when owning pulls ahead on net worth, if it does. It is a comparison under assumptions, not a verdict.
  • Where the down payment comes from · The cash to close is assembled from the plan's projected balances in a fixed order — FHSA, TFSA, unregistered, HBP, then taxed RRSP — and each dollar is priced for what taking it costs.
  • Would a lender write the mortgage? · Lenders test a mortgage against two ratios, GDS at 39% and TDS at 44% of gross income, using a stress-test rate of the contract rate plus 2 points or 5.25%, whichever is higher. All the Numbers runs this screen on the income entered for today.

References

  1. ↑FCAC: down payments · Default insurance required below this down-payment fraction · 20% · effective 2016-02-15
  2. ↑FCAC — How much you need for a down payment · Minimum down payment: the part of the price up to which the lower rate applies; the higher rate applies above it, up to the insured cap · $500,000 · effective 2024-12-15
  3. ↑CMHC Purchase Mortgage Loan Insurance ("5% of the first $500,000 of lending value and 10% of the remainder") · Minimum down payment rate, portion up to first-tier cap · 5% · effective 2024-12-15
  4. ↑CMHC Purchase Mortgage Loan Insurance ("5% of the first $500,000 of lending value and 10% of the remainder") · Minimum down payment rate, portion above first-tier cap · 10% · effective 2024-12-15
  5. ↑CMHC Purchase Mortgage Loan Insurance · Insured mortgage purchase-price cap (price must be strictly below this) · $1,500,000 · effective 2024-12-15
  6. ↑CMHC Purchase — homeowner loans · Maximum insured loan-to-value for owner-occupied 1–2 unit properties · 95% · effective 2024-12-15
  7. ↑CMHC Purchase — homeowner loans · Maximum insured loan-to-value for owner-occupied 3–4 unit properties · 90% · effective 2024-12-15
  8. ↑CMHC — Mortgage loan insurance cost · CMHC premium schedule by LTV (bp of loan): ≤65% 60; ≤75% 170; ≤80% 240; ≤85% 280; ≤90% 310; ≤95% 400. The three high-ratio tiers duplicate cmhc.premium.* for the calculator; the low-ratio tiers matter for portability/refinance · See the source · effective 2017-03-17
  9. ↑CMHC Purchase Mortgage Loan Insurance · CMHC premium tier boundaries by down-payment fraction · See the source · effective 2017-03-17
  10. ↑CMHC — Mortgage Loan Insurance Cost · CMHC premium, 15–19.99% down (LTV 80.01–85%) · 2.8% · effective 2017-03-17
  11. ↑CMHC — Mortgage Loan Insurance Cost · CMHC premium, 10–14.99% down (LTV 85.01–90%) · 3.1% · effective 2017-03-17
  12. ↑CMHC — Mortgage Loan Insurance Cost · CMHC premium, 5–9.99% down (LTV 90.01–95%) · 4% · effective 2017-03-17
  13. ↑CMHC Home Start · 30-year amortization premium surcharge (CMHC Home Start; FTHB or new build) · 0.2% · effective 2024-12-15
  14. ↑CMHC Home Start: "Maximum amortization period is 30 years"; Finance Canada 2024-09-16 for the date · Longest amortization of an insured mortgage for a first-time buyer or a new build, above 80% loan-to-value (CMHC Home Start) · 30 years · effective 2024-12-15
  15. ↑CMHC — Purchase (homeowner mortgage loan insurance): "Maximum amortization period is 25 years" · Longest amortization of an insured purchase mortgage · 25 years · effective 2012-07-09
  16. ↑Ontario Ministry of Finance — Retail Sales Tax: Insurance and Benefits Plans · Ontario RST on mortgage default insurance premium (due at closing, not financeable) · 8% · effective 1997-07-01