What is it?
Mortgage Default Insurance is applied to all mortgages where the down payment is less than 20% of the purchase price. The premiums are paid by you, but the benefit is to the lender, who is protected against the risk of you being unable to make your payments.
The rate of mortgage default insurance is calculated based on the amount of your down payment. As the lender takes on the mortgage loan insurance premium, this cost is passed on to you. The amount is added into the mortgage and included in your payments. Using a purchase price of $350,000, here are the rates:
| Down Payment | Calculated at | Total Mortgage Default Insurance |
| $17,500 (5%) | 4% | $13,300 |
| $35,000 (10%) | 3.10% | $9,765 |
| $52,500 (15%) | 2.8% | $8330 |
Mortgage Default Insurance Providers
With the risk of payment default passed along to the mortgage insurer, you could almost say it’s a good thing. Lenders can offer lower rates to mortgages protected by mortgage default insurance, allowing may of us the opportunity to purchase a home.
In Canada, there are three mortgage default insurance providers: Sagen (formerly Genworth), Canada Guaranty and the Canada Mortgage and Housing Corporation (CMHC). The services they provide are generally the same however there may be slight differences in qualifying.
Canada Guaranty
Canada Mortgage And Housing (CMHC)
Sagen
Insurer approval is a condition of the mortgage, the mortgage insurer reviews and approves the property and application details. Once the application is approved the condition is met and the premiums added to the mortgage loan amount. If you prefer the amount can be paid in a single lump sum.
Mortgage Default Insurance would take effect if your were unable to keep your mortgage obligations, and the lender was in a position to have the amount you borrowed, returned to them. It is possible they could enforce the sale of your home, the sale proceeds would be applied to your remaining mortgage balance. If market conditions produced a sale price lower than expected, mortgage default insurance would pay the lender the remaining balance owing.
Mortgage amount is $350,000, home sells for $300,000, balance owing is $50,000.
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