03/08/2026
In Canada, when a buyer purchases a home with less than a 20% down payment, mortgage default insurance is required through insurers such as Canada Mortgage and Housing Corporation (CMHC), Sagen Mortgage Insurance, or Canada Guaranty Mortgage Insurance Company.
How and When Is the Default Insurance Premium Paid?
The mortgage default insurance premium is normally NOT paid upfront in cash at the time of closing. Instead, it is added (capitalized) to the mortgage amount.
Example Based on the Following Scenario:
· Purchase Price: $400,000
· Down Payment (5%): $20,000
· Base Mortgage: $380,000
· CMHC Premium (4%): $15,200
Total Mortgage Registered Against the Property:
$380,000 + $15,200 = $395,200
Therefore, the borrower will make mortgage payments to the lender based on $395,200, not $380,000.
What Is Paid at Closing?
The borrower does NOT pay the default insurance premium itself upfront, but there is one related cost:
· Provincial Sales Tax (PST) on the insurance premium must be paid in cash at the time of closing in provinces such as Saskatchewan, Manitoba, and Ontario.
Example (Saskatchewan):
· PST = 6% of $15,200 = $912
· This $912 must be paid at the time of closing (through the solicitor) and CANNOT be added to the mortgage.
Key Point:
The Mortgage Default Insurance premium is added to the mortgage balance, while the Provincial Sales Tax (PST) on the premium must be paid in cash at closing in the provinces of Saskatchewan, Manitoba, and Ontario.
