What Is Mortgage Insurance?

Buying a home in Canada comes with several layers of financial planning. One key aspect, especially for buyers without a large down payment, is mortgage insurance—specifically, mortgage default insurance. This type of insurance doesn’t protect the homebuyer, but instead safeguards lenders in the event that the borrower stops making payments.

In the Canadian mortgage landscape, any down payment below 20 percent automatically triggers this requirement for most traditional lenders. Understanding why this happens and how it impacts your mortgage strategy—especially if you’re going through a mortgage pre approval in Surrey BC—can help you plan your purchase with more clarity.

Why Is It Required?

Lenders consider mortgages with a down payment of less than 20% to be higher risk. If the borrower defaults, there’s less equity in the property to cover potential losses during resale. To manage that risk, Canadian lenders must obtain mortgage default insurance through providers such as:

• CMHC (Canada Mortgage and Housing Corporation)
• Sagen (formerly Genworth Canada)
• Canada Guaranty

This requirement is not optional. It’s part of federal regulations enforced across the country, including British Columbia. If you’re applying for a mortgage pre approval in Surrey BC, your broker will calculate these additional costs into your budget projections.

How Much Does It Cost?

The cost of mortgage insurance isn’t fixed. It’s calculated as a percentage of your loan amount, not the home’s purchase price. The smaller your down payment, the higher the premium. Here’s a breakdown:

• 5% to 9.99% down: Premium of 4.0%
• 10% to 14.99% down: Premium of 3.1%
• 15% to 19.99% down: Premium of 2.8%

For example, if you’re buying a $600,000 home with 10% down, you’ll finance $540,000. The mortgage insurance would be roughly $16,740 (3.1% of $540,000). Most buyers roll this into their mortgage, which increases the overall loan—and interest paid over time.

During a mortgage pre approval in Surrey BC, these figures will be clearly outlined to help you understand your monthly obligations and long-term financial plan.

Who Doesn’t Need Mortgage Insurance?

You can skip mortgage insurance if:

• You provide a down payment of 20% or more
• You are refinancing and your loan-to-value ratio stays under 80%
• You are buying a home valued at $1 million or more (in which case insurance is not available)

Meeting these conditions means lenders don’t require coverage because the equity cushion is large enough to offset their risk.

That said, many homebuyers, particularly first-time buyers, prefer to make smaller down payments so they can enter the market sooner. In such cases, insurance becomes a practical necessity, not an extra charge to avoid.

What Happens During Mortgage Pre Approval in Surrey BC?

Mortgage pre-approval isn’t just about finding out how much you can borrow. It’s a step-by-step review of your income, debts, credit history, and, importantly, your down payment.

When your down payment is less than 20%, the lender will account for mortgage insurance in your affordability assessment. This can:

• Slightly reduce the maximum amount you can borrow
• Adjust your monthly payments due to a larger financed amount
• Impact the interest rate, depending on your total risk profile

In Surrey’s housing market, where prices have steadily risen, many buyers fall into this category. That’s why any serious buyer should begin with a mortgage pre approval in Surrey BC, especially if their savings don’t quite meet the 20% threshold.

Are There Alternatives?

Technically, yes. Some buyers explore alternative lenders or private mortgage options that may not require insurance, even for low down payments. However, these routes often come with:

• Higher interest rates
• Shorter loan terms
• More stringent income requirements

Suppose you’re not using an A-lender (like a bank or credit union). In that case, you’ll need to evaluate whether the increased costs of borrowing without insurance outweigh the cost of the insurance premium itself.

Working with a broker who understands these options—especially during your mortgage pre approval in Surrey BC—can help you weigh the pros and cons based on your specific financial situation.

How Mortgage Insurance Affects Long-Term Planning

Although it’s an added cost, mortgage insurance can be a gateway to homeownership for buyers who might otherwise be locked out of the market due to savings limitations. Instead of waiting years to build a 20% down payment, buyers can enter the market sooner, start building equity, and adjust their plan over time.

That said, understanding that this insurance is designed to protect lenders, not borrowers, is crucial. If you face hardship later on, the responsibility to repay the full mortgage amount remains yours.

Moving Forward

In Canada, putting down less than 20% on a home almost always means mortgage insurance will be required. The good news? This doesn’t have to be a setback. With proper guidance during the mortgage pre approval in Surrey BC process, you can understand exactly how insurance will affect your loan and plan accordingly.

For local insights and support tailored to your situation, Harkamal Gill Mortgages helps clients navigate every stage, from pre-approval to closing, with clarity and care.