CMHC vs. PMI: how mortgage default insurance actually works

Put down less than 20% on a home in Canada or the US, and a new line item shows up on your closing costs: mortgage default insurance. It gets a lot of confused questions, mostly because people assume it protects them. It doesn't. It exists so the lender is willing to approve a low-down-payment loan in the first place — and the two countries handle it in structurally different ways.

What this insurance actually protects

If you default and the home sells for less than what's owed, this insurance covers the lender's shortfall. You're still on the hook for the debt either way. What it buys you isn't protection — it's access: without it, most lenders won't approve a mortgage above 80% loan-to-value at all.

Canada: CMHC (and two private competitors)

Mortgage default insurance is mandatory in Canada any time the down payment is under 20%. Minimum down payment is 5% for homes under $500,000, rising in tiers above that, and homes at $1.5 million or more require a full 20% down — insurance isn't available above that price point.

• 5% down (95% LTV) → premium of roughly 4.00% of the mortgage amount
• 10–14.99% down → roughly 3.10%
• 15–19.99% down → roughly 2.80%
• 20%+ down → no premium required at all

One catch: in Ontario, Quebec, Manitoba, and Saskatchewan, provincial sales tax applies to the premium — and that portion cannot be rolled into the mortgage. It has to be paid in cash at closing.

US: PMI (and FHA's MIP, which behaves differently)

Conventional US loans under 20% down require private mortgage insurance, typically 0.3%–1.5% of the loan per year depending on credit score, charged monthly as an ongoing cost rather than a one-time premium. FHA loans use a different product, MIP, which comes with both an upfront and annual charge — and if the down payment is under 10%, MIP often lasts for the life of the loan and can only be removed by refinancing into a conventional mortgage.

A worked US comparison

$400,000 home, 5% down → $380,000 loan. Conventional PMI at 0.8% = $253/mo, which drops off automatically at 78% LTV — usually 8–10 years in. Total PMI paid: ~$25,000. FHA MIP on the same loan: 1.75% upfront ($6,650) + 0.55% annually ($174/mo) that continues for the life of the loan. Over 30 years, MIP total: ~$68,000. That's a $43,000 gap that mostly comes from FHA MIP never going away — the reason conventional financing is usually preferable once you can qualify.

The part people miss: PMI actually goes away

• Automatic cancellation once your loan balance is scheduled to reach 78% of the home's original value, as long as you're current on payments — no request needed.
• You can request cancellation earlier, once your balance hits 80% of original value, by asking your servicer in writing.
• Federal law also forces cancellation at the halfway point of your loan term regardless of LTV — year 15 on a 30-year mortgage.

This is the real structural difference between the two systems: PMI is a recurring monthly cost that eventually ends on its own. A CMHC premium is a one-time cost baked permanently into the mortgage — once paid (or financed), it isn't refunded as your equity grows.

The 'switching lender' penalty for insured Canadian mortgages

One overlooked upside of CMHC: once your mortgage is insured, it's insured for the life of the loan even if you switch lenders at renewal. Switching lenders on an uninsured (20%+ down) mortgage forces re-qualification under the stress test, which can trap borrowers whose situations have worsened. Insured borrowers keep more shopping leverage at every renewal — a hidden benefit that partly offsets the premium.

Is it worth waiting to save 20% instead?

Not automatically. Waiting has its own cost: more years of rent, and in an appreciating market, a higher purchase price by the time you've saved the extra down payment. Whether the insurance premium is cheaper than those two years of rent-plus-appreciation depends entirely on your local market and how fast you can actually save the gap — it's a real comparison to run, not a rule of thumb to assume either way.

Frequently asked questions

Can I write off the premium at tax time? In the US, PMI has been sporadically deductible over the past decade — check the current-year rules. In Canada, no — CMHC premiums on a personal residence aren't deductible.

Do I have to use CMHC specifically? No — Sagen and Canada Guaranty are private competitors offering similar rates and coverage. Your lender chooses; you rarely see them until closing.

The takeaway

Default insurance isn't a penalty for being a worse borrower — it's the toll for borrowing with a smaller down payment, and in both countries it's usually cheaper over time than waiting on the sidelines. Know which system you're in, know the real number, and factor it into the same all-in cost comparison you'd run for anything else in this Guide.