What Is Mortgage Default Insurance?
Mortgage default insurance is required when your down payment is less than 20% of the purchase price. According to CMHC (2025), insured mortgages account for roughly 40% of all new mortgage originations in Canada. This insurance protects the lender, not the borrower, but it’s what makes homeownership possible for buyers who haven’t saved a full 20% down.
Without default insurance, lenders would face too much risk on high-ratio mortgages, and most wouldn’t approve them. The insurance enables you to finance up to 95% of the purchase price with as little as 5% down.
How Does Mortgage Default Insurance Work in Alberta?
Three providers offer mortgage default insurance in Canada: CMHC (Canada Mortgage and Housing Corporation), Sagen (formerly Genworth), and Canada Guaranty. All three are backed by the federal government and charge similar premiums. Your lender selects the insurer, though the cost to you is effectively the same regardless of provider.
The premium is a one-time charge calculated as a percentage of your mortgage amount. Most borrowers add it directly to the mortgage balance rather than paying it upfront. This means you’ll pay interest on the premium over the life of your mortgage, which is worth factoring into your total cost.
Current Premium Rates (2026)
Premium rates are set by CMHC and apply across all three insurers:
| Down Payment | Premium (% of Mortgage) | Example: $400,000 Home |
|---|---|---|
| 5.00% – 9.99% | 4.00% | $15,200 on a $380,000 mortgage |
| 10.00% – 14.99% | 3.10% | $11,160 on a $360,000 mortgage |
| 15.00% – 19.99% | 2.80% | $9,520 on a $340,000 mortgage |
On a $400,000 Edmonton home with 5% down, you’d finance a $380,000 mortgage plus a $15,200 insurance premium, for a total mortgage of $395,200.
Alberta’s Advantage: No Land Transfer Tax
Unlike Ontario and British Columbia, Alberta does not charge a provincial land transfer tax. This saves Alberta buyers thousands of dollars at closing. On a $400,000 home, an Ontario buyer would pay roughly $4,475 in land transfer tax on top of default insurance premiums. In Alberta, that cost simply doesn’t exist. It’s one of the reasons Edmonton and Calgary remain among Canada’s most affordable major markets for first-time buyers.
What Are the Qualification Requirements?
To qualify for an insured mortgage in Canada, you must meet several criteria set by federal regulations and your lender:
- Property must be your principal residence (investment properties don’t qualify for default insurance)
- Maximum purchase price: $1,500,000 as of December 15, 2024 (Department of Finance Canada, 2024)
- Minimum down payment: 5% on the first $500,000 and 10% on any portion above $500,000
- Gross Debt Service (GDS) ratio: housing costs must not exceed 39% of gross household income
- Total Debt Service (TDS) ratio: all debt payments must not exceed 44% of gross household income
- Closing cost reserve: at least 1.5% of the purchase price saved for closing costs, on top of your down payment
The Mortgage Stress Test
Every insured mortgage must pass the federal stress test. You qualify at the higher of your contract rate plus 2%, or the 5.25% floor rate, whichever is greater (Office of the Superintendent of Financial Institutions, OSFI, 2024). As of early 2026, with contract rates in the 4% range, most borrowers qualify at roughly 6% to 6.25%.
This means your GDS and TDS ratios are calculated using the stress test rate, not your actual mortgage rate. It reduces your maximum borrowing power, but it’s designed to ensure you can handle future rate increases.
What About the 30-Year Amortization for First-Time Buyers?
In August 2024, the federal government introduced a 30-year amortization option for first-time homebuyers purchasing new builds. This was expanded in December 2024 to include all first-time buyers, regardless of whether the home is new construction (Department of Finance Canada, 2024).
A 30-year amortization lowers your monthly payment compared to the standard 25-year term. On a $380,000 insured mortgage at 4.5%, the difference is roughly $150 per month. The trade-off: you’ll pay significantly more interest over the life of the mortgage.
This option is available only for insured (high-ratio) mortgages. If you’re putting 20% or more down, the standard maximum amortization remains 25 years.
How Do CMHC, Sagen, and Canada Guaranty Compare?
All three insurers charge the same premium rates and follow the same federal qualification rules. The differences are minor:
- CMHC is a Crown corporation and the largest insurer. It publishes extensive housing research and data.
- Sagen is privately owned and the second-largest. Some lenders default to Sagen for faster processing.
- Canada Guaranty is the smallest of the three but offers competitive service and has been growing its market share.
You don’t get to choose your insurer. Your lender selects based on their internal agreements and processing preferences. The cost and coverage are functionally identical.
Frequently Asked Questions
Can I avoid mortgage default insurance?
Yes, by making a down payment of 20% or more. On a $400,000 home, that’s $80,000. If you’re not there yet, default insurance is the only path to homeownership with a smaller down payment. Many Alberta buyers find that entering the market sooner with 5% down, even with the insurance premium, builds equity faster than waiting years to save 20%.
Is the default insurance premium tax-deductible?
No. Mortgage default insurance premiums are not tax-deductible for your principal residence. However, if you purchase a rental property with a conventional (20%+ down) mortgage, the CMHC premium on that property may be deductible as a cost of borrowing. Consult a tax professional for your specific situation.
Does mortgage default insurance protect me if I can’t make payments?
No. Default insurance protects the lender, not the borrower. If you miss payments and your home goes into foreclosure, the insurer reimburses the lender for any shortfall after the property is sold. You’re still responsible for the debt. Mortgage life insurance and disability insurance are separate products that protect the borrower.
What happens to my default insurance if I switch lenders at renewal?
Your default insurance transfers with the mortgage. If you switch lenders at renewal, the insurance remains in place at no additional cost, as long as the mortgage balance doesn’t increase. You won’t need to pay a new premium or requalify.
