Know what the insurance does—and does not do
Mortgage default insurance is also called mortgage loan insurance. It covers the lender if the borrower defaults. It is different from mortgage life, disability or critical-illness insurance, and it does not remove the buyer's obligation to make every mortgage payment.
The lender arranges the insurance through an approved insurer and normally passes the premium cost to the borrower. The premium can often be added to the mortgage, which means interest is then paid on that added amount. Ask the lender for the premium, the resulting mortgage balance and the payment in writing before comparing properties.
Apply the down-payment and price rules
The Financial Consumer Agency of Canada says buyers putting down less than 20% will typically need mortgage loan insurance. For homes priced at $500,000 or less, the federal minimum down payment is 5%. For homes above $500,000 but below $1.5 million, it is 5% of the first $500,000 plus 10% of the portion above $500,000. Homes priced at $1.5 million or more require at least 20% down because insured financing is not available under the current homeowner limit.
Twenty per cent is not an automatic approval line. A lender may require more based on the borrower, property, income documentation, credit history or the lender's own policy. An insurer must also accept the application when insurance is needed.
- Below 20% down: mortgage default insurance is generally required
- 20% down or more: default insurance is generally not required, but the mortgage still needs lender approval
- $1.5 million or more: at least 20% down is required under the current federal rule
- Keep closing costs and an emergency reserve separate from the down payment
Do not confuse insured financing with affordability
Insurance can make a purchase possible with a smaller down payment, but it does not make the home affordable. The application is still tested against income, housing costs, other debt and the qualifying interest rate. CMHC's published homeowner requirements use gross-debt-service and total-debt-service limits, but a lender may apply additional underwriting standards.
A first-time buyer should compare the payment at the contract rate, the qualifying payment, property taxes, heating, insurance, strata fees where applicable, maintenance and future repairs. The maximum amount a lender approves is not necessarily the amount you should spend.
Use the Greater Vancouver price point carefully
In South Delta, the financing choice can change when a buyer compares a Tsawwassen condo or Ladner townhome with a detached home. The purchase price, property type, strata obligations and repair budget must be considered together. A smaller down payment that preserves cash may be useful, but only if the insured payment and ownership costs remain comfortable.
The same discipline matters in Vancouver and Richmond, where a property can cross the $1.5-million insurance ceiling quickly. Before viewing seriously, have the lender model at least two purchase prices and show the required cash, insurance premium, mortgage amount and monthly payment for each.
Ask for one complete financing worksheet
A useful pre-approval conversation should separate the purchase price, deposit, down payment, insurance premium, mortgage amount and closing costs. Those figures are related, but they are not interchangeable.
- Is mortgage default insurance required for this price and down payment?
- Which insurer and premium rate are being used?
- Will the premium be paid in cash or added to the mortgage?
- What mortgage amount and payment result after the premium is added?
- What borrower or property conditions could still change approval?
- How much cash must remain available for closing costs and reserves?