CMHC, Sagen & Canada Guaranty Loan Insurance | Premiums & How It Works

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In Canada, when a buyer's down payment is less than 20% of the purchase price, the borrower is required to obtain mortgage loan insurance from one of three federally approved insurers: the Canada Mortgage and Housing Corporation (CMHC), Sagen (formerly Genworth Canada), or Canada Guaranty (CG). This requirement stems from the National Housing Act (NHA) and guidelines from the Office of the Superintendent of Financial Institutions (OSFI). Mortgage loan insurance, also known as portfolio insurance or default insurance, protects the lender (not the borrower) against default risk. The insurance premium is calculated as a percentage of the total loan amount and varies by loan-to-value (LTV) ratio. For a 5% down payment, the premium is 4.00% of the loan amount. For 10%, it is 3.10%, and for 15%, it is 2.80%. This premium is generally added to the mortgage balance and amortized over the loan term, meaning the borrower pays interest on the premium. Provincial premium tax applies in Quebec at 9% and must be paid in cash at closing. Partial premium refunds are available if the loan is repaid early within the first few years, according to each insurer's policies. CMHC also offers a partial premium refund for energy-efficient properties. The mortgage broker plays a key role in explaining this mechanism to clients and ensuring the total insurance cost is factored into the financial planning of the purchase.

Mortgage Loan Insurance: A Mandatory Mechanism in Canada

In Canada, fédéral regulations require that any mortgage with a down payment of less than 20% of the purchase price be covered by mortgage loan insurance. This requirement, established by the National Housing Act (NHA) and overseen by the Office of the Superintendent of Financial Institutions (OSFI), aims to protect lending financial institutions against the borrower's default risk. It is important to understand that this insurance protects the lender, not the borrower, even though it is the borrower who bears the cost.

The Three Approved Insurers

Three organizations are authorized to provide this insurance in Canada. The Canada Mortgage and Housing Corporation (CMHC) is a fédéral Crown corporation established in 1946. Sagen, formerly known as Genworth Canada, is a private insurer. Canada Guaranty (CG) is also a private insurer. All three apply identical premium schedules set by fédéral regulation. The choice of insurer is typically made by the lender based on its commercial agreements, and the borrower generally cannot choose their insurer.

Calculating the Insurance Premium

Déterminé the Loan-to-Value (LTV) Ratio: Divide the loan amount by the property value. For example, a 5% down payment on a $400,000 property gives a $380,000 loan and a 95% LTV.
Identify the Applicable Premium Rate: LTV of 80.01% to 85%: 2.40% premium. LTV of 85.01% to 90%: 3.10% premium. LTV of 90.01% to 95%: 4.00% premium. These rates apply to the loan amount.
Calculate the Premium and Provincial Tax: On a $380,000 loan at 95% LTV: premium = $380,000 x 4.00% = $15,200. Provincial tax in Quebec (9%) = $15,200 x 9% = $1,368 payable in cash at closing.
Add the Premium to the Mortgage Balance: The total mortgage balance becomes $380,000 + $15,200 = $395,200. The $1,368 provincial tax is not added to the loan and must be paid in cash.

Partial Premium Refund

If the borrower fully repays their insured mortgage within the first few years, they may be eligible for a partial premium refund. Each insurer has its own declining schedule, but the general principle is that the refund decreases over time and is typically no longer available after the fifth year. Additionally, CMHC offers an energy-efficiency premium refund program: a 25% premium refund is granted if the property meets certain energy-efficiency standards at the time of purchase or after eligible energy-efficient renovations.

The Mortgage Broker's Role

The mortgage broker has a responsibility to clearly explain to clients how mortgage loan insurance works, including the premium calculation, its addition to the balance, the provincial tax payable in cash, and the true cost over the amortization period. The broker must also inform the client about premium refund possibilities and energy-efficiency programs. This transparency is essential for the buyer to understand the total cost of their purchase and plan their budget realistically.

Frequently Asked Questions

Why do I have to pay mortgage loan insurance if my down payment is less than 20%?

The National Housing Act and OSFI guidelines require all high-ratio mortgages (down payment less than 20%) to be insured. This insurance protects the lender against default risk. Without it, financial institutions could not offer loans with down payments as low as 5%.

How much does the CMHC, Sagen, or Canada Guaranty insurance premium cost?

The premium varies by loan-to-value ratio: 4.00% of the loan for a 5% down payment, 3.10% for 10%, 2.80% for 15%, and 2.40% for 15% to 19.99%. For example, for a $400,000 home with 5% down, the premium would be $15,200 (4.00% of $380,000), added to the mortgage balance.

Is the insurance premium added to my mortgage?

Yes. The premium is generally capitalized, meaning added to your mortgage balance. You therefore repay it over the entire amortization period and pay interest on the amount. However, the 9% provincial tax on the insurance premium must be paid in cash at closing in Quebec.

Can I get a refund on the insurance premium?

Yes, in certain cases. If you repay your mortgage in full within the first few years (generally within the first 5 years), you may receive a partial premium refund according to a declining scale. Additionally, CMHC offers a 25% premium refund for homes meeting certain energy-efficiency standards.

What is the difference between CMHC, Sagen, and Canada Guaranty?

CMHC is a fédéral Crown corporation, while Sagen and Canada Guaranty are private insurers. All three offer the same standardized premium schedules and are federally approved. The choice of insurer is generally made by the lender, not the borrower, and the terms are essentially identical.

Is mortgage loan insurance the same as mortgage life insurance?

No. Mortgage loan insurance (CMHC/Sagen/CG) protects the lender against your default and is mandatory with less than 20% down. Mortgage life insurance protects your family by paying off the loan balance in the event of death and is optional. These are two entirely different products.