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Insurance for my mortgage; who does it protect?

Lindsay Smith

By Lindsay Smith/Real Estate Columnist

I have ranted a bit over the past couple of years about mortgage insurance. It is necessary, expensive and, well really, really expensive. However, without it, many buyers in Canada could not purchase a home.

A savvy person would think that when you pay for insurance, it protects you from something. In the case of mortgage insurance, as a buyer, you pay the premium, and it benefits the lender. There you have it, for a person who plunks 10 per cent down on a home priced at $700,000 the mortgage insurance they will pay to secure the mortgage will be $19,530! Wowza! If you think that is a crazy amount, add 13 per cent on top for HST and it comes out to $22,000.  What or who does this insurance cover? Let’s dig in and see if we can shed some light on this expense.

Mortgage insurance is referred to as “Mortgage Default Insurance.” If a buyer purchases a property in Canada through a bank or credit union, putting less that 20 per cent of the purchase price down, the mortgage must be insured. This insurance is paid for by the buyer and protects the lender if the mortgage goes into arrears. In a nutshell, the insurance is paid for by the buyer and protects the bank.

As I mentioned, crazy expensive yet a necessary evil if you want to get into the housing market with a smaller down-payment.

Here is where things turned south for the largest insurance company in Canada. Canada Mortgage Housing Corporation (CMHC) is, or at least was, the largest insurer. This is a crown corporation and part of the Federal Government. They had about 50 per cent market share in the insurance business. Their competitors are privately held companies, Canada Guarantee and Sagan Capital. Last year, the previous CEO of CMHC was fearful of the market collapsing, predicting a drop in values across Canada of up to 18 per cent and made a decision to make it more challenging to obtain mortgage insurance. What they did was increase the credit score making it harder for buyers with bruised credit to get approved and decreasing the ratios of mortgage payments to income, again making it harder to qualify. This happened with the Federal Government changing the “stress test” again making it harder to qualify. What happened next was predictable. The two competing insurance companies did not change their qualification structures and lenders started to send many of the mortgages to them for insurance rather than to CMHC. CMHC’s market share dropped from about 50 per cent of the entire market to 23 per cent.

How does this affect you if you are a buyer currently house hunting? It, again, gives you a third option for insurance to obtain a mortgage, with all three companies using similar qualification rules to fund mortgages. So really, not much has changed. Many people feel comfortable knowing that the insuring premiums make their way back to the government rather than to a private company, and now that option does not incur more hoops to jump through.

What this shows me is how out of touch a Government Crown Corporation can be. If you go to CMHC’s website, their mission statement is front and centre; CMCH exists for one simple reason: to make housing affordable to everyone in Canada. In this case, they not only made it more difficult, they lost market share, which resulted in millions of dollars that are not being re-directed to Canadians to pay down our debt or reinvest in boosting the economy.

I feel the lesson here is how important it is to have a “boots on the ground” knowledge base when it comes to real estate. The further a business gets away from unlocking doors and walking buyers through homes, the more mistakes can be made. In this case an out of touch CEO created policy that was against their very mission statement. One year later, instead of the values dropping by 18 per cent, Durham Region home values are up over 30 per cent.

If you are looking for information about the real estate market, my advice is to find a full-time realtor, and lean on them for advice. Our area has many experienced professionals who understand how to best navigate the rules and how to make your buying experience successful and stress free.

If you have any questions about mortgage insurance, or how the rules to qualify affect you, I can be reached at or