If you’re putting down less than 20% on a home, you’ll need mortgage default insurance through one of Canada’s mortgage default insurers, such as CMHC, Sagen or Canada Guaranty. What many first-time buyers don’t realize, however, is that in some provinces, the cost of this insurance doesn’t stop at the base premium.

In Ontario, Quebec, and Saskatchewan, you’ll be required to pay provincial sales tax (PST) on your mortgage default insurance premium, and that tax must be paid in cash at closing. The added cost of provincial sales tax can catch buyers off guard if they’re not prepared, especially since it can increase their upfront closing costs by hundreds or thousands of dollars. We will walk you through precisely what provincial tax applies, how it’s calculated, and how to plan for it when buying a home.

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Key Takeaways

• PST on mortgage default insurance applies in Ontario (8%), Quebec (9%), and Saskatchewan (6%) and must be paid in cash at closing.
• Provincial sales tax cannot be added to your mortgage loan, so it’s important to budget into your closing costs.
• You can avoid paying provincial sales tax by avoiding the need to purchase mortgage default insurance with a 20% downpayment.

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What Is Mortgage Default Insurance?

Mortgage default insurance protects lenders if a borrower defaults on a high-ratio mortgage, which is a mortgage where the down payment is less than 20% of the purchase price. The premium is calculated as a percentage of the mortgage loan amount and is usually added directly to your mortgage balance, allowing you to pay it off over time. However, if you have the cash, you’ll have the option to pay it in full at closing instead of adding it to your mortgage balance.

While the default insurance premium itself is financed, the provincial tax charged on that premium is not. Provincial tax must be paid out of pocket at closing, typically collected by your real estate lawyer or notary, making it a crucial part of your upfront budgeting process.

Which Provinces Charge Provincial Tax on Mortgage Default Insurance?

In the past, Manitoba also applied PST to mortgage default insurance, but it was eliminated in 2020 as part of the pandemic economic relief package. As of 2025, only three Canadian provinces charge provincial sales tax on mortgage default insurance premiums:

• Ontario – 8% PST
• Saskatchewan – 6% PST
• Quebec – 9.75% QST (a reduced 9% provincial tax applies to insurance premiums)

How PST on CMHC Insurance Is Calculated

In Quebec, a lower 9% provincial tax, instead of the typical 9.75% Québec Sales Tax (QST), applies to insurance premiums, including mortgage default insurance premiums from Canada Mortgage and Housing Corporation (CMHC), Sagen, and Canada Guaranty. For example, if you buy a $350,000 home in Québec with a 5% down payment, your mortgage would be $332,500. With an insurance premium rate of 4.00%, the premium would total $13,300. The 9% provincial tax on insurance premiums adds another $1,197, which must be paid in cash at closing.

However, in Ontario and Saskatchewan, the same Provincial Sales Tax (PST) rate applies to all sales and services in these provinces. That means if you bought that same $350,000 home in Ontario, the 8% PST would apply to the $13,300 insurance premium, adding $1,064 to your closing costs. In Saskatchewan, a 6% PST would apply, adding $798. In both cases, this tax must also be paid upfront in cash and cannot be added to your mortgage.

Why PST and QST on Mortgage Insurance Must Be Paid in Cash

PST and QST are classified as provincial retail taxes, not a mortgage-related cost that lenders are permitted to finance. Mortgage lenders can add the base premium for default insurance to your mortgage amount, but not the tax. As a result, PST and QST must be included in your closing costs, alongside your down payment, legal fees, and land transfer taxes. The land transfer tax is known as Property Transfer Duties or the Welcome Tax in Québec, and  Land Titles Transfer Fee in Saskatchewan. It’s advisable to account for this additional cost, so you don’t fall short of the funds required to close and risk delaying your home purchase or renegotiating your terms and conditions at the last minute.

How to Prepare for PST on Your Insurance Premium

It’s essential to prepare early for this extra cash requirement. Even a few hundred dollars can affect your affordability if your down payment is already tight. First-time homebuyers (FTHB) could benefit from using a dedicated savings account for their closing costs at least 90 to 120 days before their mortgage is expected to fund. While lenders may still require a paper trail of the funds, having the money in place for more than 90 days will simplify the source of funds (SoF) due diligence.

Here are some steps to help you plan:

• During your mortgage pre-qualification, ask your mortgage broker for an estimate of your total closing costs, including your insurance premium
• If you reside in Ontario, Québec or Saskatchewan, use your provincial tax rate to calculate the tax on the premium
• Add that number to your estimated closing costs (land transfer tax, legal fees, title insurance, and adjustments)

Strategies to Reduce or Avoid Mortgage Default Insurance Costs

A mortgage expert can help you find the right mix of solutions and incentives to avoid unnecessary costs. If your goal is to minimize both the mortgage loan insurance premium and the provincial sales tax attached to it, there are a few strategies you can explore:

• Put down at least 20%: A 20% downpayment paired with no more than a 25-year amortization and a home valued less than $1 million allows you to access low insurable mortgage rates, and your lender will cover the cost of the mortgage default insurance premium. Even if you have a 20% downpayment on an uninsured mortgage, you’ll still eliminate the provincial tax.
• Consider CMHC rebates: The CMHC Eco Plus offers premium refunds of up to 25% for homebuyers financing newly built energy-efficient homes. This refund reduces the base premium amount, lowering the PST or QST you’ll owe.
• Use gifted downpayments or FTHB incentives: You may be able to increase your down payment using gifted funds from family or by combining government programs, such as the First Home Savings Account (FHSA) and the Home Buyers’ Plan (HBP).

Frequently Asked Questions (FAQ) About Provincial Taxes on Mortgage Default Insurance Premiums

Final Thoughts

Understanding the additional costs associated with mortgage insurance is a crucial part of budgeting for your home purchase. Provincial sales tax, typically PST or QST, on default insurance might seem small at first glance. Still, when combined with your down payment and other closing costs, it can affect your affordability and readiness to close.If you’re buying in Ontario, Quebec, or Saskatchewan with less than 20% down, it’s critical to plan for this cost ahead of time. Contact a nesto mortgage expert, we’ll help you navigate and estimate your total closing costs, explore ways to reduce insurance premiums, and structure your mortgage strategy for your unique needs.

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Why Choose nesto

At nesto, our commission-free mortgage experts, certified in multiple provinces, provide exceptional advice and service that exceeds industry standards. Our mortgage experts are non-commissioned, salaried employees who provide impartial guidance on mortgage options tailored to your needs and are evaluated based on client satisfaction and advice quality. nesto aims to transform the mortgage industry by providing honest advice and competitive rates using a 100% fully digital, transparent, seamless process.

nesto is on a mission to offer a positive, empowering and transparent property financing experience – simplified from start to finish.

Contact our licensed and knowledgeable mortgage experts to find your best mortgage rate in Canada.

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