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Mortgage default insurance

A lender will not write a mortgage for more than 80% of a home's price unless it is insured against default. The borrower pays the premium, even though the insurance protects the lender.

The rules

  • Required when the down payment is under 20% of the price.
  • Minimum down payment: 5% of the first $500,000 of the price and 10% of the rest. A home of $1,500,000 or more needs 20% down, so it cannot be insured.
  • Price cap: the price must be strictly below $1,500,000.
  • Premium, as a share of the loan before the premium:
Down payment Premium
15% to 19.99% 2.80%
10% to 14.99% 3.10%
5% to 9.99% 4.00%
  • 30-year amortization: 0.20 percentage points more, and only for a first-time buyer or a newly built home. The standard maximum is 25 years.
  • Ontario retail sales tax: 8% of the premium. It cannot be added to the loan, so it is paid in cash on closing day.

What the engine does

  • Adds no insurance at 20% down or more.
  • Finds the premium tier from the loan-to-value ratio, adds the premium to the mortgage, and charges the 8% tax on it as part of the cash needed at closing. The larger mortgage then sets the payment and is the loan used in the qualification test.
  • Refuses a down payment under the minimum, and an insured purchase at $1,500,000 or more.
  • Applies the 30-year surcharge only when the buyer is marked as a first-time buyer.
  • Treats a purchase closing after 2026 under the 2026 rules, unchanged, and says so in the plan's assumptions. The caps and tiers are policy and may change.

What it deliberately does not

  • The 4.50% premium for a down payment that is itself borrowed (a non-traditional down payment).
  • Insurance on a mortgage that is not for an owner-occupied home of one or two units. The planner's purchases are all owner-occupied resale homes.
  • The lower premiums that apply to loans of 80% or less when a lender insures voluntarily, and any refund of the premium on a transfer or refinance.
  • New-build GST/HST.

How much cash a purchase needs, including this tax, is part of where the down payment comes from; the other closing tax is land transfer tax.

Connected to

  • How a mortgage payment is worked out · A fixed-rate Canadian mortgage compounds its interest twice a year, not monthly, so the monthly payment comes from a rate slightly lower than the quoted rate divided by twelve. The default rate is 4.27%, and the rate stays fixed for the whole amortization.
  • Land transfer tax · Ontario charges a tax on the price of a home, rising from 0.5% to 2.5% in brackets, and Toronto adds a second one of its own. A first-time buyer gets a refund of up to $4,000 from Ontario and $4,475 from Toronto.
  • Where the down payment comes from · The cash to close is assembled from the plan's projected balances in a fixed order — FHSA, TFSA, unregistered, HBP, then taxed RRSP — and each dollar is priced for what taking it costs.
  • Would a lender write the mortgage? · Lenders test a mortgage against two ratios, GDS at 39% and TDS at 44% of gross income, using a stress-test rate of the contract rate plus 2 points or 5.25%, whichever is higher. The planner runs this screen on the income entered for today.

Sources