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Here's what you need to know about Mortgage Default Insurance

At TD Canada Trust, we are required to make sure that our mortgage customers and the general public are told the facts about mortgage default insurance: what it is, when it is needed, how it is calculated, and other important details that affect homeowners.

What is Mortgage Default Insurance? It is a type of insurance that enables qualified borrowers to purchase homes with a down payment of as little as 5%. It also provides a "safety net" for federally regulated financial institutions like TD Canada Trust that lend out money on the security of residential real estate, and increases the number of Canadians who may be able to qualify for mortgages.

When you are approved for a mortgage that requires mortgage default insurance, you have the choice of either paying the default insurance premium amount up front oradding it to the principal portion of your mortgage.

Mortgage borrowers can see the amount of their mortgage default insurance premium by looking at their TD Canada Trust Mortgage Commitment or Mortgage Loan Agreement. Ontario and Quebec also charge a provincial sales tax on the mortgage premium amount, which is also paid by the mortgage borrower.

Financial institutions, like TD Canada Trust, that charge borrowers for mortgage default insurance must fully explain the coverage to mortgage borrowers, including who is protected by the mortgage insurance, and who pays for it.

At TD Canada Trust, we cannot lend our customers more than 80% of the value of their residential property unless the mortgage is insured against default. The borrower pays for this insurance (and any applicable sales tax).

Mortgage default insurance helps protect TD Canada Trust should a customer default on a mortgage. A mortgage is generally considered to be in default if a payment is not made on the scheduled due date, but there are other situations when a mortgage may be in default. If a property is sold as the result of a mortgage default but the sale does not generate enough money to pay the outstanding balance and all associated costs, fees and interest, the insurer will pay the shortfall to TD Canada Trust and will then have the right to enforce against each borrower personally for the deficiency.

Financial institutions that charge borrowers for mortgage default insurance must also explain how the insurance premium amount is calculated and charged.

At TD Canada Trust, we are required to provide specific information about mortgage applications to the companies that provide mortgage default insurance. This information is used by the mortgage insurer to calculate the premium amount that is charged to the borrower. This information includes:

  • Stated Property Value
  • Loan Amount
  • Loan to Value (LTV) ratio
  • Amortization Period
  • Employment Status

The company providing the insurance will calculate the premium amount and inform us of the amount. We then pass on that charge to the borrower. In all cases, the default insurance premium amount charged to TD Canada Trust by the insurer, plus any applicable sales tax, is the amount charged to the borrower.

TD Canada Trust deals with two mortgage default insurers – Canada Mortgage and Housing Corporation (CMHC) and Genworth Financial Canada (Genworth). We do not receive any benefits or payments from either company and we do not have any arrangements that require disclosure to borrowers.

Here is how your insurance premium is calculated

Mortgage information passed on to the insurerWhat it means
Stated Property ValueLesser of purchase price or property value, as provided by you
Loan AmountAmount you want to borrow:
This is the Principal Amount minus the insurance premium (if financed)
Loan to Value (LTV) ratioRatio of Loan Amount to Stated Property Value
Amortization PeriodTime required to pay off the mortgage, assuming the same interest rate throughout the entire duration of the mortgage
Employment StatusEmployed or self-employed with third party income validation, or self-employed without third party income validation


Default insurance premium rates used by CMHC and Genworth:

LTV ratio25-year amortization period
Owner-occupied propertiesRental PropertiesCottage Properties*
Percentage charged on Loan Amount for employed/self-employed borrower with third party income validationPercentage charged on Loan Amount for self-employed borrower without third party income validationPercentage charged on Loan Amount for employed/self-employed borrower with third party income validationPercentage charged on Loan Amount for employed/self-employed borrower with third party income validation
Up to 65%0.50%0.80%1.25%1.25%
65.01% - 75%0.65%1.00%1.75%1.40%
75.01% - 80%1.00%1.64%2.50%1.75%
80.01% - 85%1.75%2.90%Not available2.50%
85.01% - 90%2.00%4.75%Not available2.75%
90.01% - 95%2.75%Not availableNot availableNot available
 
* These percentages apply to purchase of cottage properties that may not be accessible year-round, or are accessible year-round but do not meet Genworth's standard property criteria.


If the amount of your mortgage results from combining an existing insured mortgage with new money, then the insurance company will combine the information from the existing mortgage and use the premium tables shown here to calculate the premium amount. The insurer may determine that a premium credit is available

Here are default insurance premium rates offered by insurers when there is an increase on the borrowed amount, and the original loan amount required mortgage default insurance. This rate is charged on the new money:

LTV ratio25-year amortization period
Owner-occupied propertiesRental PropertiesCottage Properties*
Percentage charged on increase to Loan Amount for employed/self-employed borrower with third party income validationPercentage charged on increase to Loan Amount for self-employed borrower without third party income validationPercentage charged on increase to Loan Amount for employed/self-employed borrower with third party income validationPercentage charged on increase to Loan Amount for employed/self-employed borrower with third party income validation
Up to 65%0.50%1.50%2.75%1.25%
65.01% - 75%2.25%2.60%3.00%3.00%
75.01% - 80%2.75%3.85%3.75%3.50%
80.01% - 85%3.50%5.50%Not available4.25%
85.01% - 90%4.25%7.00%Not available5.00%
90.01% - 95%4.25%Not availableNot availableNot available
 
0.5% premium surcharge on the above percentages may be added by the insurer when amortization on the existing mortgage is blended with that of the new money.

* These percentages apply to purchase of cottage properties that may not be accessible year- round, or are accessible year-round but do not meet Genworth's standard property criteria.