What It Is, Why You Need It, and How It Works in Canada

If you're buying a home in Ontario and your down payment is less than 20 percent of the purchase price, there's a good chance you've heard of CMHC insurance. But what exactly is it? And why do you need it?

Let’s break it down in simple terms.

What Is CMHC Insurance?

CMHC stands for Canada Mortgage and Housing Corporation. It's a government-backed organization that provides mortgage default insurance. This insurance protects the lender, not the buyer. If you ever default on your mortgage—meaning you stop making payments—the insurance kicks in and helps cover the lender’s losses.

Now, just because it protects the lender doesn’t mean it doesn’t help you too. Without this insurance, lenders wouldn’t be willing to take the risk of offering mortgages with small down payments. So in a way, CMHC insurance makes homeownership possible for many Canadians who don’t have 20 percent saved up.

When Is It Required?

CMHC insurance is mandatory in Canada if your down payment is less than 20 percent of the home’s purchase price. This is what’s known as a high-ratio mortgage. The insurance allows lenders to offer these mortgages while still protecting their own interests.

If you’re putting down 20 percent or more, you’re considered lower risk and you won’t need this insurance.

How Much Does It Cost?

The cost of CMHC insurance is based on the size of your down payment and the amount of your mortgage. It’s calculated as a percentage of the loan amount, typically ranging from 2.80 percent to 4.00 percent.

For example, if you’re buying a $500,000 home and putting down 5 percent, your mortgage would be $475,000. At a 4 percent premium, your CMHC insurance would cost $19,000. But don’t worry—you don’t have to pay that all upfront. It’s usually added to your mortgage and paid off over time as part of your regular payments.

What Are the Benefits?

The biggest benefit is accessibility. CMHC insurance allows more people to enter the housing market with a smaller down payment.

It also leads to competitive interest rates. Since the lender is protected, they’re often willing to offer better rates than they might otherwise.

And because the insurance is backed by the federal government, it brings a level of stability to the Canadian housing market as a whole.

Are There Alternatives?

Yes. In Canada, there are two other private insurers: Sagen and Canada Guaranty. These companies offer similar mortgage default insurance with slightly different guidelines or premium structures. Lenders will sometimes choose which insurer they work with, but the rules are generally the same across all three.

The Bottom Line

CMHC insurance is not just another fee, it’s a tool that helps thousands of Canadians become homeowners every year. It offers lenders peace of mind and buyers the ability to get into the market with as little as 5 percent down.

If you’re not sure how it affects your situation or want help figuring out how it impacts your total costs, reach out anytime. I’m here to help make it all clear.