Mortgage default insurance is often required when purchasing a home with a down payment of less than 20% of the purchase price. While the insurance protects the lender—not the borrower—it allows buyers to qualify for a mortgage with a smaller down payment. Understanding how mortgage default insurance is calculated can help you better estimate the total cost of purchasing a home.
When Is Mortgage Default Insurance Required?
In Canada, mortgage default insurance is generally required when your down payment is less than 20% of the home’s purchase price. If you provide a down payment of 20% or more, mortgage default insurance is typically not required.
The insurance premium is calculated as a percentage of the mortgage amount, not the purchase price of the home.
How Much Does Mortgage Default Insurance Cost?
The cost of mortgage default insurance depends primarily on the size of your down payment. Generally, the smaller the down payment, the higher the insurance premium.
Table 1: Mortgage Default Insurance Premium Rates
*Premium rates are calculated as a percentage of the mortgage amount and are subject to change.
Mortgage Insurance Premium Chart – Alex Kotai | Your Mortgage Source
How Is the Premium Paid?
Most home buyers do not pay the insurance premium upfront. Instead, the premium is typically added to the mortgage balance and repaid through regular mortgage payments over the life of the loan.
In some provinces, applicable provincial sales tax on the premium must be paid at closing and cannot be added to the mortgage.
Example of Mortgage Default Insurance
Suppose you purchase a home for $500,000 with a 10% down payment of $50,000. Your mortgage amount would be $450,000. Based on the applicable premium rate of 3.10%, the mortgage default insurance premium would be $13,950. Rather than paying this amount upfront, it would typically be added to your mortgage balance.
Key Takeaways
- Mortgage default insurance is generally required when the down payment is less than 20% of the home’s purchase price.
- Insurance premiums are based on the mortgage amount and vary depending on the size of the down payment.
- A larger down payment generally results in a lower insurance premium.
- Most buyers finance the premium by adding it to their mortgage balance.
- Understanding mortgage default insurance costs can help first-time home buyers better plan their overall home purchase budget.
If you need more information regarding mortgages or if you need any advice on your personal situation please contact our office at 604-556-3893 or email at alex.kotai@ymscanada.ca.
For more information on our mortgage products and your preferred Abbotsford Mortgage Broker please visit our website at www.ymscanada.ca.
#FirstTimeHomeBuyer #1stTimeHomeBuyer #ZeroDownMortgage #0DownMortgage #NoDownPaymentMortgage #NewHomeBuyerBenefits #BorrowedDownPaymentMortgage #MortgagePayment #MortgageCalculator #MortgageClosingCosts #MortgagePreapproval #AlexKotai