Quick answer: Mortgage default insurance protects the lender—not the buyer—if the borrower defaults. It is generally required when the down payment is below 20%, subject to current rules, property-value limits and insurer underwriting.
Last verified: September 15, 2026
When is mortgage insurance usually required?
Federally regulated lenders generally require insured financing for eligible purchases with less than a 20% down payment. Insurance may also be required in other higher-risk circumstances. Not every borrower or property qualifies.
The current federal down-payment rules depend on the purchase price. Review the Financial Consumer Agency of Canada’s down-payment page for the current thresholds.
Who pays the premium?
The borrower normally pays the premium, often by adding it to the mortgage principal. Provincial sales tax, where applicable, may need to be paid separately at closing rather than financed. Buyers should confirm the exact cash requirement with the lender, mortgage professional and lawyer.
What does it protect?
Default insurance reduces the lender’s risk. It is different from home insurance, title insurance, mortgage life insurance or disability insurance. A default-insurance claim does not eliminate the borrower’s obligations.
Why an insured mortgage can still be declined
- Income or credit does not meet underwriting standards.
- The property is unacceptable to the lender or insurer.
- The appraisal does not support the price.
- The source of the down payment cannot be documented.
- Debt-service calculations exceed permitted limits.
Questions buyers should ask
- What premium applies at this down payment?
- Will the premium be added to the mortgage?
- What cash costs are due at closing?
- Does the property meet the insurer’s requirements?
- How would a larger down payment affect the rate and total cost?
Start with OHI’s mortgage pre-approval guide and low-appraisal guide.
Frequently asked questions
Is mortgage default insurance the same as home insurance?
No. Home insurance generally addresses insured loss or damage to the property and liability. Mortgage default insurance protects the lender if the borrower defaults.
Can the premium be avoided with a 20% down payment?
Often, but not always. A lender may require insurance based on the borrower, property or loan structure. Buyers should obtain a transaction-specific answer.
Does the insurance premium become part of the mortgage?
It is commonly added to the mortgage principal, which means interest may be paid on it. Applicable provincial sales tax may have different closing treatment.
Does insurance guarantee mortgage approval?
No. The lender and insurer still assess the borrower and property. Appraisal, property condition, income verification and credit can all affect the result.
General information only: Mortgage-insurance eligibility, premiums and underwriting change. This is not mortgage, insurance, legal or financial advice.