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Mortgage Insurance

what is mortgage insurance

What is Mortgage Default Insurance?

Mortgage default insurance, commonly referred to as “mortgage insurance”, protects the lender from losses related to borrower default on their mortgage loan. Mortgage insurance is required by the Government of Canada on all high-ratio mortgages where the home buyer is putting less than 20 per cent down payment on the purchase price of a home. This insurance, which allows lenders greater flexibility to offer programs that require a lower down payment, means that qualified borrowers can purchase a home with as little as five per cent down.

There are two types of mortgage options:

  1. High-ratio Mortgages:
    loans with less than 20 per cent down payment
  2. Conventional Mortgages:
    loans with a minimum 20 per cent down payment

Applicable mortgage insurance premiums are calculated as a percentage of the loan and are based on product type and the amount of down payment. Although premiums can be paid in a lump sum upon closing, they are traditionally added to the mortgage amount and amortized (paid) over the length of the mortgage.

NOTE: Mortgage insurance should not be confused with mortgage life insurance, which is designed to repay any outstanding mortgage debt in the event of homeowner death or long-term illness/disability.

There are three providers of mortgage default insurance in Canada. Sagen MI Canada and Canada Guaranty, the two private sector providers of mortgage insurance, are both MTIIAC members.

types of mortgage options