Mortgage Insurance in Canada: Legal and Regulatory Framework
Mortgage insurance in Canada is a regulatory mechanism that allows borrowers to access homeownership with as little as 5% down, while protecting lenders against default risk. The National Housing Act (R.S.C. 1985, c. N-11) and the Bank Act (S.C. 1991, c. 46) require that any mortgage with a loan-to-value ratio exceeding 80% (down payment under 20%) be covered by mortgage insurance. This obligation protects the Canadian financial system while broadening homeownership access for millions of households.
The Three Authorized Mortgage Insurers
- CMHC (Canada Mortgage and Housing Corporation): fédéral Crown corporation founded in 1946, the largest mortgage insurer in Canada. CMHC is 100% guaranteed by the Government of Canada. It insures approximately 40% of insured loans and also administers the Canada Mortgage Bonds (CMB) program.
- Sagen (formerly Genworth Canada): publicly traded private insurer, the second largest in Canada. Sagen is 90% guaranteed by the fédéral government. Its premiums are generally identical to CMHC's. Sagen is often perceived as more flexible for non-standard files.
- Canada Guaranty: the third market insurer, also 90% government guaranteed. Canada Guaranty has gained market share by offering personalized service and competitive response times. An important player for mortgage brokers.
Down Payment Rules and Premium Schedule
The minimum down payment is progressively structured: 5% on the first $500,000 of the purchase price and 10% on amounts exceeding $500,000. For a $700,000 property, the minimum is $25,000 (5% of $500,000) plus $20,000 (10% of $200,000), totalling $45,000. Insurance premiums are calculated as a percentage of the loan amount and vary by loan-to-value ratio: 4.00% for a 95% ratio (5% down), 3.10% for 90% (10% down), 2.80% for 85%, and 0.60% for 80.01 to 85% (15-19.99% down). The premium can be added to the loan amount and amortized over the mortgage term.
Recent Changes: $1.5M Cap and 30-Year Amortization
Since December 2024, two important changes were made to mortgage insurance rules. The maximum property price eligible for insurance increased from $1 million to $1.5 million for first-time buyers, enabling insurance access in urban markets like Montreal where many properties exceed $1 million. Additionally, first-time buyers of new builds can now obtain 30-year amortization on insured loans, up from 25 years. These measures aim to facilitate homeownership access for first-time buyers in a challenging affordability context.
Transactional vs Portfolio Insurance
Two types of mortgage insurance exist. Transactional insurance is mandatory for loans with less than 20% down and the premium is paid by the borrower. Portfolio insurance (also called 'back-end insurance') is voluntarily contracted by the lender to insure conventional loans (20%+ down) for securitization through CMHC's CMB program. The borrower does not pay this premium, but it influences the offered rate. Portfolio-insured loans must meet the same criteria as transactional insured loans, including the stress test.
The Broker's Strategic Role
Quebec mortgage brokers must master insurance rules to optimize each client's financing. This includes precise down payment calculation, insurance premium estimation and its total loan cost impact, comparison between insured and conventional loans (accounting for the lower rate and premium), choosing the most appropriate insurer based on file profile, and leveraging new first-time buyer measures. The broker who presents these analyses clearly and quantitatively demonstrates added value and strengthens client confidence.