Understanding Mortgage Default Insurance Premiums: 25 vs 30 Years

If you're buying a home in Canada with less than 20% down, there's one cost that surprises almost every first-time buyer: mortgage default insurance. It's one of the largest expenses in your purchase — sometimes more than $20,000 — yet most buyers don't fully understand what it is, how it's calculated, or what choosing a 25-year versus 30-year amortization actually does to the cost. Let me break it all down clearly, with real numbers, so you can make an informed decision before you sign anything.

What Is Mortgage Default Insurance?

Mortgage default insurance (often called CMHC insurance, though it's also provided by Sagen and Canada Guaranty) is mandatory insurance on any residential mortgage in Canada where the down payment is less than 20%. It protects the lender — not you — in the event that you stop making payments and default on the mortgage. Despite protecting the lender, the premium is paid entirely by the borrower.

You might ask: why would I pay for insurance that protects the lender? The trade-off is that this insurance enables lenders to offer mortgages with as little as 5% down at relatively low interest rates. Without it, lenders would either require 20% down from everyone, or they'd charge significantly higher rates to compensate for the risk. In that sense, mortgage default insurance is part of what makes homeownership accessible to Canadians who haven't yet saved a full 20%.

In Canada, all three insurers — CMHC, Sagen, and Canada Guaranty — use essentially the same premium rates, so the insurer used is typically determined by your lender, not by you.

Who Has to Pay It?

Mortgage default insurance is required if all of the following apply:

Your down payment is less than 20% of the purchase price. The home is your primary residence (investment properties don't qualify for default insurance). The purchase price is under $1,500,000 (the cap was raised from $1M to $1.5M on December 15, 2024). Your amortization is 25 years or less — unless you're a first-time buyer or purchasing a new build, in which case 30-year amortizations are now permitted (more on that below).

If your purchase price is $1,500,000 or more, you must put down 20% minimum — no exceptions. Default insurance isn't available at that price point regardless of your credit or income.

The Premium Rates: 25-Year vs 30-Year Amortization

The insurance premium is calculated as a percentage of your total mortgage amount (not the purchase price). Here are the current rates as of 2025:

With a 25-year amortization (standard):

5% down (95% loan-to-value): 4.00% premium. 10% down (90% LTV): 3.10% premium. 15% down (85% LTV): 2.80% premium. 20% or more down: 0% — no insurance required.

With a 30-year amortization (available to first-time buyers and new build buyers since December 15, 2024): CMHC adds a 0.20% surcharge to each tier:

5% down: 4.20% premium. 10% down: 3.30% premium. 15% down: 3.00% premium.

That 0.20% surcharge might seem small, but on a $500,000 mortgage, it's an extra $1,000 added to your mortgage balance. Worth knowing upfront.

Real Dollar Examples: What You'll Actually Pay

Let me run through some concrete numbers so this isn't just abstract percentages.

Example 1: $500,000 purchase, 5% down ($25,000 down), 25-year amortization

Mortgage amount: $475,000. Premium at 4.00%: $19,000. Your actual mortgage balance: $494,000. If you're in Ontario, you also pay 8% PST on the premium ($1,520) at closing — that's a cash cost, not rolled into the mortgage. In Alberta, there's no PST on CMHC premiums.

Example 2: $500,000 purchase, 5% down ($25,000 down), 30-year amortization

Mortgage amount: $475,000. Premium at 4.20%: $19,950. Your actual mortgage balance: $494,950. The 30-year option costs $950 more in insurance on this example. But the lower monthly payment may make the trade-off worthwhile depending on your cash flow.

Example 3: $700,000 purchase, 10% down ($70,000 down), 25-year amortization

Mortgage amount: $630,000. Premium at 3.10%: $19,530. Your actual mortgage balance: $649,530.

Example 4: $700,000 purchase, 10% down ($70,000 down), 30-year amortization

Mortgage amount: $630,000. Premium at 3.30%: $20,790. Your actual mortgage balance: $650,790. The 30-year option costs $1,260 more in insurance here.

Example 5: $900,000 purchase, 15% down ($135,000 down), 25-year amortization

Mortgage amount: $765,000. Premium at 2.80%: $21,420. Your actual mortgage balance: $786,420.

Example 6: $900,000 purchase, 15% down ($135,000 down), 30-year amortization

Mortgage amount: $765,000. Premium at 3.00%: $22,950. Your actual mortgage balance: $787,950. The 30-year option adds $1,530 in insurance.

How Is the Premium Actually Paid?

The insurance premium is added directly to your mortgage balance — you don't pay it in cash at closing (the PST portion in applicable provinces is the exception — that is a cash expense). So you're effectively financing the premium and paying interest on it over the life of the mortgage. This means the true cost of the premium is higher than the face amount once you factor in the interest.

On a $19,000 premium rolled into a mortgage at 5% over 25 years, you're paying roughly $28,000 total — $19,000 in premium plus about $9,000 in interest on that premium. That's worth understanding when you're evaluating whether pushing to 20% down makes financial sense.

25 Years vs. 30 Years: The Real Monthly Payment Impact

So why would anyone choose the 30-year amortization with its slightly higher premium? The answer is monthly cash flow. A longer amortization stretches the same mortgage balance over more payments, which means a lower monthly obligation.

Take a $475,000 mortgage at a 5% interest rate (roughly illustrative — your actual rate will vary):

25-year amortization: Monthly payment ≈ $2,768. Over 25 years, total interest paid ≈ $355,400 (plus the $19,000 premium, for a total cost of $374,400 above the principal).

30-year amortization: Monthly payment ≈ $2,546. Over 30 years, total interest paid ≈ $440,600 (plus the $19,950 premium, for a total cost of $460,550 above the principal).

The monthly saving with 30 years is about $222. The additional cost over the life of the mortgage is approximately $86,000. Whether that trade-off makes sense depends entirely on your financial situation. For buyers who need the lower monthly payment to qualify, or who want to preserve cash flow for other investments, the 30-year option can absolutely make sense. For buyers who can comfortably handle the higher payment, 25 years saves real money in the long run.

Does Mortgage Default Insurance Ever Come Off?

This is a question I get a lot: "Once I've paid down enough to have 20% equity, does the insurance automatically drop?" The short answer is: no, not automatically.

Unlike private mortgage insurance in the United States, Canadian mortgage default insurance does not automatically cancel when you reach 80% loan-to-value. The premium you paid at the start is baked into your mortgage balance for the entire term (and amortization period). There's no mechanism for it to be removed mid-mortgage without refinancing.

If you want to get rid of the insurance obligation, your options are: reach 20% equity and refinance into a new conventional mortgage (which itself has costs); wait until your mortgage is up for renewal and then refinance (if you have 20% equity at that point); or simply keep paying and accept that the insurance cost was the price of getting into the market earlier with less down.

For most people, staying in the insured mortgage is the right choice — refinancing has costs too, and the interest rate you got on your insured mortgage may already be very competitive.

Provincial Sales Tax (PST) on CMHC Premiums

One thing that catches buyers off guard, particularly those coming from Alberta: some provinces charge provincial sales tax on the CMHC insurance premium, and this amount must be paid in cash at closing — it cannot be rolled into the mortgage.

Here's how it breaks down by province: Alberta: 0% (no PST) — lucky us. Ontario: 8% of the insurance premium. Manitoba: 7%. Quebec: 9%. All other provinces: 0%.

So if you're buying in Ontario with a $19,000 insurance premium, you'll owe $1,520 in PST at closing. Plan for this as a cash expense on top of your down payment and other closing costs.

Strategies to Reduce or Avoid the Insurance Premium

The most obvious way to avoid the premium entirely is to put down 20% or more. But that's not always possible, and for many first-time buyers, the math of waiting to save that extra money doesn't work in their favour when home prices are rising. Here are some other strategies worth considering:

Combine your FHSA and RRSP Home Buyers' Plan. A first-time buyer can potentially access $40,000 from their FHSA plus $60,000 from their RRSP ($100,000 combined), which on a $500,000 home would be 20% — eliminating the insurance premium entirely. It takes years to accumulate this, but it's a real achievable target.

Use a family gift to top up to 20%. If you're close to the 20% threshold and a family member is willing to gift the difference, it can make sense to eliminate the premium. Just remember that gift letters are required and the money needs to be documented.

Consider the payoff timeline. If you're planning to sell within 5 years, the insurance cost as a percentage of your overall transaction is relatively small. If you're planning to stay for 25 years, the long-term interest cost of carrying that premium is significant. Your intended holding period should factor into how urgently you work toward 20%.

Putting It All Together

Mortgage default insurance is a real cost, but it's also a tool that makes homeownership accessible to millions of Canadians who haven't yet saved a full 20% down payment. Understanding the exact premiums, how they change with your amortization choice, and what they cost in real dollars over time puts you in a much better position to make smart decisions.

If you're working through these numbers and trying to figure out the right strategy for your situation — 5% down? 10%? 25 years? 30 years? — this is exactly the kind of analysis I do with clients every day. Let's run the numbers for your specific purchase price and financial situation.