How is the CMHC mortgage default insurance premium calculated in Ontario?

Mortgage default insurance protects the lender — not you — if you stop making payments. In Canada it is mandatory when your down payment is less than twenty percent of the purchase price. The insurance is provided by CMHC, Sagen, or Canada Guaranty, and the premium is calculated as a percentage of the insured loan amount.

Premium rates are set by the insurer and vary based on your loan-to-value ratio. A higher loan-to-value — meaning a smaller down payment relative to the purchase price — results in a higher premium percentage. The premium is added to your mortgage balance and amortized over your loan term, meaning you pay interest on it as well.

In Ontario, provincial sales tax (PST — not HST) applies to CMHC premiums and must be paid in cash on closing; it cannot be rolled into the mortgage. This is a cost that catches some buyers off guard, as it can be a meaningful amount. Your lender will include the premium in the mortgage amount automatically, and your lawyer's statement of adjustments will show the PST due at closing. Ask your lender to calculate the exact premium at the start of your transaction so you can budget accordingly.