What is mortgage default insurance?
Mortgage default insurance is mandatory if you’re buying a home with a down payment of less than 20%. When you get a mortgage, you agree to make regular payments to repay the loan. Mortgage default insurance protects the lender if you stop making payments on time or in full, which is known as defaulting on your mortgage.
If you default, the insurer can take legal action and enforce payment. They also pay the lender if there’s a shortfall once the property is sold and expenses are paid. If this happens, you’re still responsible for the shortfall on the mortgage. This means the lender or mortgage insurer can take legal action against you for any money you owe.
Default insurance is available across Canada, except for homes worth over $1 million. In this case, homebuyers aren’t eligible for default insurance and have to finance their homes as uninsured mortgages.