Mortgage default insurance, commonly referred to as CMHC insurance, is mandatory in Canada for down payments between 5% (the minimum in Canada) and 19.99%. Mortgage default insurance protects lenders if a homeowner defaults on their mortgage.
Although mortgage default insurance costs homebuyers 1.75% - 2.75%1 of their mortgage amount, it is actually beneficial to the buyer market. Without it, mortgage rates would be higher, as the risk of default would increase. Lenders are able to offer lower mortgage rates when mortgages are protected by default insurance, as the risk of default is spread across multiple homebuyers.
On July 9th, 2012, the Canadian government made 2 key changes to CMHC insurance regulation:
1. CMHC insurance will not be available on homes >$1 million, requiring purchasers to put at least 20% down.
2. The maximum amortization period offered on CMHC-insured mortgages is 25 years.
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