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Mortgage Insurance vs Mortgage Default Insurance: Know the Difference in Canada

Mortgage Insurance vs Mortgage Default Insurance: What’s the Difference?

Published on June 17, 2025 | By WealthFusions Finance Team

Mortgage Insurance vs Mortgage Default Insurance: What’s the Difference?

FeatureMortgage InsuranceMortgage Default Insurance
Who It ProtectsYou (the borrower) and your familyThe lender (bank or financial institution)
PurposeHelps pay off your mortgage if you die or become disabledProtects the lender if you default on your loan
Mandatory?OptionalMandatory if down payment is less than 20%
ProviderInsurance company (e.g. Manulife, Sun Life)CMHC, Sagen, or Canada Guaranty
Paid ByYou (monthly premiums)You (usually added to mortgage)
CostBased on age, health, loan sizeBased on down payment size and loan amount
💡 Tip: Mortgage **default insurance** is required when your down payment is under 20%. Mortgage **life insurance** is optional but can provide peace of mind.

Buying a home in Canada often comes with additional costs—two of the most confusing being mortgage insurance and mortgage default insurance. Though they sound similar, they serve completely different purposes and protect different parties. In this guide, we’ll break down the definitions, costs, key differences, and when you need each, with real-world data and comparisons. Understanding both can help you avoid surprises—and save money—when buying your home.

What Is Mortgage Default Insurance?

Mortgage default insurance (often referred to as CMHC insurance) is mandatory in Canada if your down payment is less than 20% of the home’s purchase price. It protects the lender—not the borrower—in case you default on your mortgage.

  • Required for homes under $1 million with less than 20% down payment.
  • Offered by CMHC, Genworth (Sagen), and Canada Guaranty.
  • Premium is a one-time fee, usually rolled into your mortgage.
Down PaymentInsurance Premium (as % of loan)
5%–9.99%4.00%
10%–14.99%3.10%
15%–19.99%2.80%

Example: If your home costs $500,000 and you put down 10% ($50,000), your mortgage is $450,000. The premium would be 3.1% × $450,000 = $13,950, typically added to your loan balance.

What Is Mortgage Life or Mortgage Insurance?

Mortgage insurance (also called mortgage life insurance) is optional coverage that protects your family by paying off the outstanding mortgage balance if you die (or become seriously ill, depending on coverage).

  • Offered by banks, credit unions, and insurance companies.
  • Premiums are based on age, health, mortgage balance, and coverage type.
  • Declining benefit: coverage amount decreases as your mortgage reduces.
  • You (or your family) are the beneficiary—not the lender.

Important: Mortgage insurance is not required by law and is different from term life insurance, which can offer more flexible protection and usually better value.

Key Differences: At a Glance

FeatureMortgage Default InsuranceMortgage Life Insurance
PurposeProtects lender against borrower defaultProtects your family by repaying mortgage
Required?Yes (if down payment < 20%)No (optional)
BeneficiaryLenderFamily or estate
CostAdded to mortgage balanceMonthly premium (varies)
CoverageDoes not help borrowerHelps pay off remaining mortgage if you die
Type of ProductGovernment-backed risk insuranceLife/disability insurance product

When Do You Need Each?

You need mortgage default insurance if:

  • Your down payment is less than 20%.
  • Your home purchase is under $1 million.
  • You’re applying for a high-ratio insured mortgage with a CMHC-approved lender.

Consider mortgage life insurance if:

  • You have dependents or co-owners who could struggle to pay off the mortgage if you pass away.
  • You don’t have term life insurance in place.
  • You want peace of mind and one less financial burden for your family.

Tip: Compare mortgage life insurance with term life insurance—you might get more coverage for less cost.

What Does It Mean for First-Time Buyers?

Over 60% of Canadian first-time buyers put down less than 20%, so mortgage default insurance is common. It increases the cost of borrowing but also allows more people to enter the housing market.

Mortgage life insurance is a personal decision. While convenient to buy through your lender, it may not be portable or as affordable as a standalone life insurance policy.

Conclusion: Protect Your Mortgage the Right Way

Mortgage default insurance is mandatory in certain cases to protect the lender, while mortgage insurance protects your loved ones. Know which one you’re paying for, and compare alternatives to make the best financial decision. For personalized advice, contact our advisors or explore our insurance planning section.

Frequently Asked Questions

1. Is mortgage insurance the same as home insurance?
No. Home insurance covers damage to your home. Mortgage insurance pays off your mortgage if you die.
2. Can I cancel my mortgage insurance later?
If it’s mortgage life insurance, yes. If it’s mortgage default insurance, it stays for the term of the loan.
3. Is mortgage insurance tax deductible?
Mortgage life insurance premiums are not tax deductible. Default insurance premiums may be deductible on rental properties.
4. How can I avoid mortgage default insurance?
Make a down payment of at least 20% or purchase a home over $1 million (which requires 20% minimum).
5. What’s the best alternative to mortgage life insurance?
Term life insurance is often cheaper and more flexible, with fixed premiums and customizable beneficiaries.
6. Does mortgage insurance cover job loss?
Not by default. You’ll need separate mortgage protection insurance that includes job loss or disability.
7. Can I choose my own mortgage insurance provider?
For mortgage life insurance, yes. For default insurance, the lender chooses from CMHC, Sagen, or Canada Guaranty.
8. Is default insurance refundable if I refinance?
Partially—if you refinance or pay off your mortgage early, you might get a partial refund depending on timing.

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