Mortgage default insurance is required on any Canadian mortgage where the down payment is less than twenty percent of the purchase price. It pays the lender if a borrower stops making payments and the sale of the home does not cover the balance.
That surprises many buyers. You pay the premium, but the coverage belongs to the bank. In exchange, lenders accept far smaller down payments and often give insured borrowers the lowest rates available, since their risk is covered.
Who Provides It
Three insurers operate in Canada. CMHC is the federal agency, while Sagen and Canada Guaranty are private. Your lender chooses which one to use, and the rules across all three are broadly similar.
Who Needs It in Ottawa
With the average residential sale price in Ottawa sitting at $683,308 in July 2026 and a median of $635,000, twenty percent down means roughly $127,000 to $137,000. Most first time buyers do not have that, which is why insured mortgages remain the common path in Ottawa, Kanata, Orleans, Barrhaven, Gatineau area purchases, and smaller centres like Carleton Place and Rockland.
When You Do Not Need It
- You are putting twenty percent or more down
- The purchase price is above $1.5 million, since insured financing is not available there
- You are refinancing an existing property, which always requires twenty percent equity
- You are buying a rental property you will not occupy
What It Costs in 2026
The premium is a percentage of the mortgage amount and rises as the down payment shrinks.
- Five to 9.99 percent down, roughly 4.00 percent of the mortgage
- Ten to 14.99 percent down, roughly 3.10 percent
- Fifteen to 19.99 percent down, roughly 2.80 percent
A 30 year amortization, which first time buyers and new build purchasers can now access, adds a small surcharge of about 0.20 percent.
A Real Ottawa Example
On a $635,000 home with five percent down, the mortgage is $603,250 and the premium sits near $24,130. That amount is added to your mortgage rather than paid at closing.
The Ontario Detail Buyers Forget
Ontario charges eight percent provincial sales tax on the premium, and that portion must be paid in cash at closing. On the example above that is close to $1,930 on top of your other closing costs. Budget for it.
Down Payment Rules That Apply
Five percent on the first $500,000 and ten percent on the portion above it, up to the insured maximum purchase price of $1.5 million. Above that limit you need at least twenty percent down and the mortgage cannot be insured.
Run the full picture on our mortgage calculator before you decide how long to keep saving.
Should You Wait and Save Twenty Percent
Sometimes the premium is the cheaper choice. Saving another $90,000 takes most households several years, and during that time prices, rents, and your rate can all move. Buying earlier with insurance means you start building equity now.
The opposite is also true. If you are within reach of twenty percent within a few months and the market is soft, waiting saves real money. Ottawa is currently balanced, with active listings near 4,678 in July and homes taking longer to sell, so buyers have some breathing room to decide.
The Hidden Advantage of Insured Mortgages
Insured borrowers often receive lower rates than uninsured borrowers with twenty percent down, because the lender carries no risk. The gap can be a quarter point or more, which offsets part of the premium cost over the term.
Portability and Refunds
If you sell and buy again within the term, most insurers allow the coverage to move with you, which avoids paying a second full premium. Ask your broker before you list. Premiums are generally not refundable once the mortgage funds, though some insurers offer partial refunds on energy efficient homes.
Our mortgage insurance page explains the coverage types in more detail.
Not the Same as Mortgage Life Insurance
Default insurance protects the lender. Mortgage life or disability insurance protects your family by paying off or covering the mortgage if you die or cannot work. They are completely separate products, and confusing the two leaves families exposed.
Frequently Asked Questions
Do I pay mortgage default insurance monthly?
The premium is added to your mortgage balance and repaid through your regular payments. Only the Ontario sales tax on it is due in cash at closing.
Can I avoid the premium with a gifted down payment?
Yes. Gifted funds from an immediate family member count toward the twenty percent threshold as long as a gift letter confirms the money does not need to be repaid. Bank Street Mortgage can walk you through the documentation.
Is default insurance required on a rental property?
Not for properties you will not live in. Owner occupied properties with a rental unit may still qualify for insured financing.
Does the premium change my interest rate?
Indirectly. Insured mortgages usually carry lower rates than uninsured ones because the lender risk is covered.
What happens to my insurance if I switch lenders?
An insured mortgage keeps its coverage on a straight switch, so you do not pay a new premium when you move at renewal.
Is a second mortgage covered by mortgage default insurance?
No. A second mortgage is generally not covered by mortgage default insurance such as CMHC, Sagen, or Canada Guaranty. Default insurance applies to eligible first mortgages with a down payment below 20%, while a second mortgage is typically secured against the equity you already have in your property.
Can I get insured financing above $1.5 million?
No. Purchases above that cap require at least twenty percent down and uninsured financing. Bank Street Mortgage places these files regularly.
Is the Premium a Cost or a Ticket In?
Mortgage default insurance looks like an unwelcome expense until you compare it against several more years of renting while you save. For many Ottawa households it is the tool that makes ownership possible now rather than later, and the lower insured rates soften the hit. The right answer depends on how close you are to twenty percent, how stable your income is, and what the market is doing in the neighbourhood you want. Run both scenarios before you decide.
Not sure whether to buy now or keep saving? Talk to Bank Street Mortgage and we will price both paths for you.