What Is CMHC Mortgage Insurance, Really? The Premiums, the $1.5M Cap, and the Money Math Behind a Low Down Payment
It protects the lender, not you — but it’s the reason you can buy with 5% down. Here’s how the premiums, the price cap, and the new 30-year amortization actually work.
If my down payment is under 20%, what is CMHC mortgage insurance and what does it cost?
It’s mortgage default insurance — and it protects your lender, not you. In Canada, any time your down payment is below 20% of the price (a high-ratio mortgage), the law requires this insurance, written by CMHC or one of two private insurers (Sagen, Canada Guaranty). Per CMHC, the premium is a percentage of the loan amount, and the smaller your down payment, the higher it is: 4.00% at 95% loan-to-value (5% down), 3.10% at 90%, 2.80% at 85%, 2.40% at 80%. The premium is usually added to your mortgage principal — but in Ontario you also owe 8% provincial sales tax on the premium, which cannot be added to the loan and must be paid in cash at closing.
Sources: CMHC, "Mortgage Loan Insurance Cost" (cmhc-schl.gc.ca); Department of Finance Canada, Dec 15, 2024 mortgage reforms (canada.ca). Rates are CMHC’s standard premium schedule.
Almost every first-time buyer asks me the same thing: “Arthur, this CMHC insurance — that protects me, right? If I can’t pay, it covers me?” I have to be blunt: no. It protects the bank lending you the money. If you default, the insurer reimburses the lender’s loss — and the lender can still pursue you for the shortfall. So what’s in it for you? Simple: because that insurance backstops the lender, the bank is willing to lend with as little as 5% down instead of making you save a full 20%. It doesn’t “protect” you — it lets you buy sooner. Here’s how the premiums, the down-payment tiers, the $1.5M cap, the new 30-year amortization, and that easy-to-miss Ontario tax all work.
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First: who must buy it, and why
In Canada, a mortgage with less than 20% down is “high-ratio,” and the law requires default insurance on it. Three insurers write it: the federal CMHC, plus private insurers Sagen and Canada Guaranty. You pay the premium, but the beneficiary is the lender. The logic: the smaller your down payment, the more risk the lender carries — the insurance is what makes a low down payment acceptable to them. Think of it as paying a premium to buy a few years earlier than you otherwise could. Whether that’s worth it depends on your cash position and where prices are heading.
Step 1: Read the premium table — less down means a higher rate
ℹ️The premium is a percentage of the loan, not the price. Put a little more down and both the rate and the base shrink — so near the 20% line, every extra 1% of down payment has an outsized effect.
Step 2: Don’t forget Ontario’s 8% sales tax on the premium
⚠️Ontario’s 8% tax on the premium can’t be rolled into the loan — it’s cash at closing. Many buyers budget the down payment to the dollar and discover this gap on closing day. Reserve for it in advance.
Step 3: Down-payment tiers and the $1.5M cap (2024 rules)
The new 30-year amortization: who qualifies, and the trade-off
Also effective December 15, 2024, per Finance, first-time buyers — or anyone buying a newly built (never-occupied) home — can stretch amortization from 25 to 30 years on a high-ratio (LTV > 80%) insured mortgage. A longer amortization lowers your monthly payment and can help you pass the stress test, but the cost is more total interest over the life of the loan. It’s a tool for easing monthly cash flow, not for saving money — right for a tight budget that wants in now, wrong if your goal is the lowest total interest.
💡 CMHC insurance is, at heart, a premium plus 8% Ontario tax you pay for the right to buy without a full 20% down. If you’re close to 20% and not in a hurry, saving a bit more to cross that line eliminates the premium entirely. If prices are rising and your cash is limited, the appreciation you capture by buying sooner can dwarf the premium. There’s no universal answer — only the one you get by running the premium, the tax, the interest, and your own timeline together.
Frequently Asked Questions
Does CMHC insurance protect me if I default?
No. It protects the lender. If you default and the lender takes a loss after selling the property, the insurer reimburses the lender — and the lender can still pursue you for the shortfall. Its benefit to you is that it lets lenders accept under 20% down, so you can buy sooner.
Do I have to pay the premium all at once?
The premium itself is usually added to your mortgage principal and paid off with interest over the term — no lump sum needed. But in Ontario, the 8% provincial sales tax on the premium cannot be added to the loan and must be paid in cash at closing. Budget for that separately.
If I put exactly 20% down, do I still need it?
No. At 20% down (loan at or below 80% LTV) the mortgage is uninsured, so no default insurance is required — saving you both the premium and the 8% tax. That’s a major reason buyers push to reach 20%.
Is a smaller down payment always a worse deal?
The premium rate does rise as the down payment shrinks (up to 4.00% of the loan at 5% down). But “worse deal” depends on prices too: if waiting a year or two means prices climb more than the premium costs, buying sooner can come out ahead. Run the premium, tax, interest, and your timeline together to decide.
Arthur Zhao
Real Estate Broker · FRI · ABR · SRS · PSA · MCNE · E-PRO · CLHMS & GUILD Elite · REAIS
VP & Branch Manager, Bay Street Group Inc.
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