Mortgage Default Insurance in Ontario: Is It Worth It?

For many first-time homebuyers (FTHBs) in Ontario—especially those without a full 20% down payment—the path to homeownership comes with a tradeoff. Buyers can either wait and save for a larger down payment or move forward sooner, knowing they’ll need to pay for mortgage insurance. While this might feel like a personal choice, it's not: mortgage insurance is required by law for all buyers putting down less than 20%. It’s not optional and it’s not there for peace of mind—it’s simply the cost of entering the market early.

The decision, then, is not whether to get mortgage insurance or not. It’s whether to hold off and save more, or pay the additional cost to become a homeowner sooner. On the upside, mortgages with insurance often qualify for slightly lower interest rates—but that’s a separate financial factor, not a benefit of the insurance itself.

In this article, we’ll explain what mortgage insurance is, when it’s required, the different providers available in Ontario, and how to decide whether paying for it now makes sense based on your financial goals.

What Is Mortgage Insurance?

Mortgage insurance is a policy that protects the lender—not the homebuyer—if the borrower defaults on their loan. In Ontario and across Canada, this insurance is mandatory when the buyer’s down payment is less than 20% of the purchase price. It allows lenders to offer mortgages to buyers with smaller down payments by reducing their financial risk.

Since buyers with less equity are statistically more likely to default, this insurance coverage ensures that the lender is reimbursed if the borrower can’t make their payments. While it adds to the cost of buying a home, mortgage insurance is what enables many Canadians to enter the real estate market without having to wait years to save a larger down payment.

Mortgage Insurance Providers in Ontario

In Ontario, there isn’t a variety of different types of mortgage insurance—there’s really just one product, offered by three different providers. These providers are:

• Canada Mortgage and Housing Corporation (CMHC)

• Sagen (formerly Genworth Canada)

• Canada Guaranty

All three offer essentially the same kind of mortgage insurance, which is required when a homebuyer puts down less than 20%. While there may be minor differences in underwriting criteria or service, the core product—lender protection in the event of borrower default—is the same across the board.

CMHC Insurance

The most common form of mortgage insurance in Ontario is provided by CMHC, a Crown corporation that works to make housing more affordable for Canadians. CMHC insurance is typically mandatory for all mortgages with a down payment of less than 20%. This insurance protects the lender in the event that the borrower defaults.

CMHC insurance premiums are calculated based on the size of the down payment and the overall mortgage amount. The higher the down payment, the lower the insurance premium. Premiums range from 2.8% to 4.0% of the mortgage amount, depending on the size of the down payment.

Mortgage Insurance Providers: CMHC, Sagen, and Canada Guaranty

While the Canada Mortgage and Housing Corporation (CMHC) is the most well-known provider, there are two other approved mortgage insurance providers in Ontario: Sagen (formerly Genworth Canada) and Canada Guaranty. These are not "private mortgage insurance" providers in the American sense of the term, and referring to them that way can be misleading—especially since it may be confused with private lending.

All three insurers offer the same core product, and in most cases, the premiums and coverage are nearly identical. The key differences lie in subtle variations in their underwriting policies and approval criteria. Lenders may choose one provider over another depending on the specific details of the mortgage application, but from the buyer’s perspective, the differences are usually minimal.

Why Do You Need Mortgage Insurance?

Mortgage insurance is primarily designed to protect the lender, not the borrower. However, it also offers several benefits to homebuyers. For those with a down payment of less than 20%, mortgage insurance is typically required by the lender. This allows buyers to secure financing and purchase a home even without a large down payment.

In addition to enabling buyers to enter the real estate market sooner—especially in competitive markets like Ontario—mortgage insurance also typically results in a lower mortgage rate. Most of the advertised mortgage rates are for insured mortgages, meaning you could secure a more favorable rate compared to a non-insured mortgage.

Moreover, mortgage insurance providers offer a variety of specialized programs beyond the standard option for small down payments. For example, programs like Stated Income, New to Canada, and Purchase Plus Improvements are available, providing flexibility for different financial situations.

Is Mortgage Insurance Worth It?

The real question that many homebuyers in Ontario face is whether or not mortgage insurance is worth the cost. The answer to this question depends on various factors, such as personal financial circumstances, homebuyer goals, and market conditions. Let’s break it down:

1. Access to Homeownership Sooner

For many first-time buyers in Ontario, coming up with a 20% down payment on a home is not feasible, especially given the high prices in cities like Toronto. Mortgage insurance allows buyers to secure a home with a down payment as low as 5%, meaning they can enter the real estate market sooner than they would be able to otherwise.

This can be particularly beneficial for those who are ready to take on homeownership and have stable incomes, but simply don’t have enough saved for a 20% down payment. Mortgage insurance, therefore, acts as a stepping stone, helping buyers get their foot in the door and start building equity.

2. Higher Monthly Costs

While mortgage insurance opens the door to homeownership for many buyers, it also comes with additional costs. The premiums for CMHC insurance are added to your mortgage payments, which increases your monthly mortgage payment. These premiums can add hundreds of dollars to your monthly costs, depending on the size of your loan and down payment.

For buyers on a tight budget, this can be a significant added burden, especially when combined with other costs of homeownership, such as property taxes, utilities, maintenance, and repairs. When considering whether mortgage insurance is worth it, it’s important to take this additional expense into account.

3. Protecting the Lender, Not You

It’s also important to remember that mortgage insurance primarily protects the lender, not the borrower. If the borrower defaults on the loan, the insurer covers the lender’s costs, but the borrower is still responsible for repaying the mortgage, even if the insurance company covers part of the loan.

Mortgage insurance can, therefore, be seen as a safety net for the bank rather than the borrower, though it does allow borrowers with small down payments to enter the housing market sooner. Some buyers may not be comfortable with paying insurance premiums for a policy that doesn’t benefit them directly.

4. Possibility of Cancelling Insurance

A common misconception is that mortgage insurance can be cancelled once you’ve built enough equity in your home. However, this is not the case. Mortgage insurance is a one-time cost that is added to your mortgage balance, not a recurring fee. Once the insurance is in place, it cannot be removed, and your monthly payments will not decrease because of it.

While it may seem like a permanent cost, mortgage insurance is simply part of your mortgage loan. Once you’ve paid down enough of your mortgage, you won’t be able to cancel the insurance, but the cost of the insurance is already factored into your overall mortgage payment.

Alternatives to Mortgage Insurance

If you’re not keen on paying for mortgage insurance, there are a few alternatives, though they come with their own set of pros and cons:

1. Increase Your Down Payment

The most obvious alternative to paying for mortgage insurance is to increase your down payment to 20% or more of the home’s purchase price. This can be difficult for many homebuyers, especially those in high-cost areas, but it eliminates the need for mortgage insurance altogether. By saving a larger down payment, buyers can avoid the added cost of insurance premiums and potentially secure a better mortgage rate.

2. Get a Gift or Loan for a Larger Down Payment

Another option is to receive a gift or loan from a family member or friend to increase your down payment. In some cases, lenders may accept gifted down payments, but they must be properly documented to ensure there is no obligation to repay the gift. This can be a good way to avoid mortgage insurance if you have family or friends willing to assist you financially.

Look into Non-Insured Mortgages

Some lenders, particularly major banks, offer non-insured mortgages for buyers who have larger down payments or meet certain financial criteria. These mortgages typically come with higher interest rates compared to insured mortgages, but they can be an option for buyers who don’t need mortgage insurance and can meet the lender's requirements.

While it’s technically possible for a private lender to offer a non-insured mortgage with less than 20% equity, this is extremely rare and usually very expensive. For most buyers, the practical option is to secure a mortgage with insurance if the down payment is under 20%.

Conclusion

Mortgage insurance in Ontario is worth it for many first-time homebuyers who don’t have enough savings for a 20% down payment but want to enter the housing market sooner. It allows buyers to secure financing with a smaller down payment and can provide access to homeownership that would otherwise be out of reach.

However, mortgage insurance does come with additional costs that increase your monthly mortgage payments. It is not a decision to be taken lightly, and potential buyers should carefully consider whether the benefits outweigh the costs. In some cases, it may be worth it to delay purchasing a home until you can save a larger down payment or explore alternatives like securing a non-insured mortgage. As with any financial decision, it's important to evaluate your options and choose the path that aligns best with your goals and financial situation.