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Mortgage default insurance, commonly referred to as “mortgage insurance” is a policy that protect the lender if the borrower is unable to make payments on the loan. It helps Canadians buy a home sooner and with a lower down payment. In fact, qualified borrowers can purchase a home with as little as 5% down.

In Canada, mortgage insurance is required federally on high-ratio mortgages – that is, mortgages with a down payment of less than 20%. This insurance, which protects the lender and investor – not the homeowner in case of borrower default – gives lenders the flexibility to offer borrowers with low down payments the same low interest rates they would offer to homebuyers with more equity.

Mortgage insurance can also assist the borrower in the event they need to skip a mortgage payment due to job loss. This protects the borrower from defaulting on their mortgage due to a single missed payment. For those with a high ratio mortgage, borrowers may access other programs available through mortgage insurers to keep them in their homes.

The cost of mortgage insurance depends on two factors:

The type of mortgage applied for.
The amount of the down payment.

The cost to purchase mortgage insurance is known as the ‘premium’. Mortgage insurance premiums are based on the amount of the mortgage and although they can be paid in a lump sum upon closing by the client, they are normally added to the mortgage amount and included in the monthly mortgage payment.

Any mortgage at Home Trust with an LTV (Loan-To-Value) of 80% or greater must be insured. This allows Home Trust to lend over 80% LTV with less risk as with mortgage insurance Home Trust will receive mortgage payments even if the client were to default on their mortgage payments.