Understanding Mortgage Insurance – When You Need It and When You Don’t

Mortgage insurance is one of those things that homebuyers either don’t think about until it’s too late or don’t fully understand until they realize it’s adding hundreds of dollars to their monthly payments. Whether you’re buying your first home, refinancing, or investing in real estate, understanding when mortgage insurance is required—and when you can avoid it—can save you thousands of dollars.

In this guide, we’ll break down:
✔️ The differences between CMHC, Sagen (formerly Genworth), and Canada Guaranty
✔️ How to avoid unnecessary mortgage insurance costs
✔️ When private mortgage insurance (PMI) makes sense

By the end, you’ll know exactly how mortgage insurance works, whether you need it, and how to minimize or eliminate its impact on your mortgage.

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What is Mortgage Insurance?

Mortgage insurance protects the lender, not the borrower—despite the fact that you’re the one paying for it. It exists to reduce the lender’s risk when they approve a borrower with less than a 20% down payment.

If you default on your mortgage, the insurance company reimburses the lender for their losses. This makes lenders more willing to approve buyers with lower down payments, but it also adds an extra cost to your mortgage.

In Canada, mortgage insurance is typically required for:
✔️ High-ratio mortgages (those with less than 20% down)
✔️ Borrowers who don’t meet traditional lending guidelines
✔️ First-time homebuyers who haven’t saved a full 20% down payment

If you’re putting 20% or more down, mortgage insurance is generally not required, but there are some exceptions (which we’ll cover later).

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The Three Major Mortgage Insurance Providers in Canada

Unlike the U.S., where private mortgage insurance (PMI) is handled by various companies, Canada has three main providers of mortgage default insurance:

1. CMHC (Canada Mortgage and Housing Corporation)

✔️ The largest and most well-known insurer in Canada
✔️ Government-backed (carries the lowest risk for lenders)
✔️ More conservative approval guidelines than private insurers

2. Sagen (formerly Genworth Financial)

✔️ Privately owned mortgage insurer
✔️ Offers more flexibility in approvals, particularly for self-employed borrowers or unique income situations
✔️ Often considered for non-traditional borrowers

3. Canada Guaranty

✔️ Canada’s smallest mortgage insurer but gaining market share
✔️ Provides competitive options for high-ratio borrowers
✔️ More likely to approve certain applications denied by CMHC

Example:
Jake is self-employed and has strong income but limited provable earnings on his tax returns. He applies for mortgage insurance through CMHC but gets denied due to their strict income verification rules. His broker submits the same application to Sagen, which approves his mortgage using alternative income verification methods.

Each insurer has slightly different guidelines, so if one denies your application, another may still approve it.

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How to Avoid Unnecessary Mortgage Insurance Costs

Mortgage insurance isn’t cheap—and it’s an extra cost that gets rolled into your mortgage, meaning you’ll pay interest on it over time.

Here’s how to reduce or avoid mortgage insurance costs:

1. Put Down at Least 20%

The easiest way to avoid mortgage insurance is to put down at least 20% of the home’s purchase price. If you can meet this threshold, your lender won’t require default insurance.

Example: Lisa is buying a $500,000 home. If she puts down 10% ($50,000), she will need mortgage insurance. If she puts down 20% ($100,000), she avoids it altogether.

If you’re close to 20%, consider:
✔️ Delaying your purchase slightly to save up more
✔️ Using RRSP withdrawals under the Home Buyers’ Plan
✔️ Exploring gifted down payments from family

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2. If You Must Pay Mortgage Insurance, Put Down 10% or More

If saving 20% isn’t realistic, aim for at least 10%. Why? Because the mortgage insurance premiums decrease as your down payment increases.

Here’s how the insurance premiums are calculated:

Down Payment	Mortgage Insurance Premium (as % of loan amount)
5% - 9.99%	4.00%
10% - 14.99%	3.10%
15% - 19.99%	2.80%
20%+	No insurance required

✔️ Example: Mark buys a $400,000 home with 5% down. His mortgage insurance premium is $15,200 (4% of his mortgage). If he had saved up 10% instead, his insurance cost would drop to $11,160, saving him over $4,000.

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3. Buy Below $1 Million

In Canada, mortgage insurance is not available for homes priced over $1 million. If you’re buying an expensive property, you’ll need to put down 20% or more—otherwise, you won’t qualify for a mortgage.

✔️ Example: A buyer considering a $1.05M home with only 10% down wouldn’t qualify. If they lowered their budget to $999,000, they could still access mortgage insurance.

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When Private Mortgage Insurance (PMI) Makes Sense

While most buyers want to avoid mortgage insurance, there are situations where it actually makes sense.

1. When You Want to Enter the Market Sooner

If you wait until you’ve saved 20% down, home prices may rise beyond your reach. In some cases, buying now with mortgage insurance is better than waiting.

✔️ Example: Sarah hesitates to buy a condo at $450,000 with 10% down, hoping to avoid mortgage insurance by saving up to 20%. Two years later, the same condo is worth $550,000, and now she needs $110,000 instead of $90,000—making it even harder to buy.

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2. If Your Investments Outperform the Insurance Cost

If you have a strong investment strategy, keeping extra cash in the market may be better than using it for a larger down payment.

✔️ Example: David has $100,000 saved. He could:

• Use $80,000 for a 20% down payment (avoiding mortgage insurance).
• Use $40,000 for a 10% down payment and keep $60,000 invested in stocks earning 8% annually.

If his investments grow faster than his mortgage insurance costs, he comes out ahead financially.

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Final Thoughts – When You Need Mortgage Insurance and When You Don’t

You need mortgage insurance if:

• You put less than 20% down on a home.
• You want to enter the market sooner rather than wait to save.
• You’re buying a home under $1M with a small down payment.

You can avoid mortgage insurance if:

• You put down 20% or more.
• You buy a home over $1M (where insurance isn’t available).
• You work with a lender offering alternative financing solutions.

Understanding how mortgage insurance works can help you minimize costs, make informed financial decisions, and maximize your buying power. If you’re unsure how to structure your mortgage to avoid unnecessary insurance fees, let’s talk and create a plan that works best for your situation!