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What’s the difference between mortgage life insurance, mortgage loan insurance or mortgage default insurance? These terms all seem quite similar and are sometimes used interchangeably to add further confusion to things. These various types of coverage are very different and offer unique benefits to Canadian homeowners. Mortgage loan insurance or mortgage default insurance is typically required by lenders when you are buying a home or looking for mortgage refinancing and have less than a 20% down payment based on the property’s value. Mortgage life insurance, on the other hand, is a life insurance policy that pays out a lump sum upon your death to cover the rest of your mortgage. You can view more details in our Canadian Mortgage Life Insurancearticle.

Mortgage loan insurance is supplied by the Canadian Mortgage and Housing Corporation (CMHC), which is a government organization and private insurers including Genworth Financial and AIG United Guaranty, and helps protects lenders against mortgage default. It’s estimated that about 50% of mortgages taken out in Canada need to be insured. It enables consumers to purchase homes with little or no down payment with interest rates comparable to those with a 20% down payment while providing additional protection to lenders for their added risk. As with all types of insurance, there are premium payments that need to paid for the coverage. The CMHC premiums vary from 0.50% - 2.90% and dependS on the loan-to-value (LTV) ratio of the down payment.

For example, if you were purchasing a $300,000 home and had a $30,000 down payment, your LTV ratio would be 10%.

CMHC Mortgage Loan Insurance Premiums

Loan-to-Value (LTV) ratio	Standard Premium (% of Loan)
Up to and including 65%	0.50%
Up to and including 75%	0.65%
Up to and including 80%	1.00%
Up to and including 85%	1.75%
Up to and including 90%	2.00%
Up to and including 95%	2.75%
90.01% to 95% - Non-Traditional Down Payment	2.90%
90.01% to 95% - Non-Traditional Down Payment	2.90%

Note: See your lender for premium surcharges and other terms and conditions that apply. * Ontario and Quebec - premiums are subject to provincial sales tax: the sales tax cannot be added to the loan amount.

The mortgage default insurance rates are the same for CMHC, AIG and Genworth Financial as shown above and the products come with many similar features as a mortgage including:
# Portable: you can take the coverage with you to a new home if you move, although the premium could change if the new house value is different
# Assumable: you can assume a mortgage and mortgage loan insurance from someone else if you purchase their home if the lender allows it
# Assignable: if you are able to transfer the mortgage to another lender, you can transfer the mortgage default insurance as well.

As far as the lender is concerned, mortgage default or mortgage loan insurance can be a saving grace in today’s financial times, and it is starting to look more like a win - win situation as it protects the lender and enables the borrower to purchase a house that they might not otherwise have been able to. Although due to Canada’s tighter lending criteria over the years we shouldn’t (knock on wood) get into a USA type housing crisis with foreclosures all over the place. This could result in a situation where in the case of a default, the lender has the option to approach the insurance company and ask them to buy the property from them or the insurance company will pay a percentage of the debt owed and will assist the lender in selling the property through an auction or conventional sale. This will assist both the lender and the insurance company in recouping some of their money.

As always, it would helps to speak to a mortgage expert during the buying process to avoid the above situation and see what is the best for your own situation.