If you’re buying a home with a down payment of less than 20%, you’re required to obtain mortgage insurance. Also referred to as ‘mortgage default insurance’ or ‘CMHC insurance’, this requirement is designed to protect lenders against risk should you stop making your mortgage payments and default on your loan.
- Provincial sales tax (PST) on mortgage default insurance premiums, where applicable, is a compulsory cost you must pay when buying a home
- In Manitoba, Ontario and Quebec, mortgage default insurance premiums are subject to PST
- Whereas mortgage default insurance premiums are integrated into the overall mortgage balance, the PST on the premium must be paid upfront as part of your closing costs
Without mortgage default insurance, everyone would be forced to make a 20% down payment when purchasing property. Thankfully, because of this insurance, the minimum down payment requirement in Canada is 5% for the first $500,000 and 10% for any portion above that threshold
Mortgage default insurance premiums are determined by the size of your down payment – the more you put down, the less insurance you’ll have to pay, but typically range from 2.8% to 4% of your mortgage amount. Premium payments are generally incorporated directly into your mortgage (in addition to the principal and interest) and are, therefore, paid off over the duration of the loan.
In Canada, there are three mortgage insurance providers – Canada Mortgage and Housing Corporation (CMHC), Canada Guaranty and Genworth Canada. CMHC is a crown corporation, and ‘CMHC insurance’ has become somewhat of a general term for mortgage default insurance. The other two insurers are private companies.
Private mortgage insurers Genworth Financial and Canada Guaranty didn’t follow suit with stricter CMHC changes on July 1st, 2020, which means it’s now easier to quality for the private mortgage default insurance offerings
Provincial sales tax on insurance premiums, where applicable, is a compulsory cost you need to pay in order to buy your home. This is in addition to all of the other closing costs you’ll need to cover, which can add up quickly. Make sure you’re prepared and have the cash available to ensure you don’t miss out on the home of your dreams. See: Closing Costs: What are They and How Much Will You Pay?
Example of paying PST on mortgage default insurance
To calculate your mortgage default insurance, as well as the sales tax on the insurance premium, you’ll want to use an insurance calculator. You simply need to enter the amount of your down payment and the length of time for your mortgage repayment to calculate the insurance premium. You can then apply the sales tax rate for your province: Manitoba, 7%; Ontario, 8%; and Quebec, 9.975%.
If you live in Quebec and your mortgage insurance premium is $8,000, your sales tax (known as Quebec Sales Tax or QST) would be $798 ($8,000 x 9.975%)
PST by province – Manitoba, Ontario & Quebec
In Manitoba, Ontario and Quebec, mortgage insurance premiums are subject to provincial sales tax (PST). Whereas insurance premiums are integrated into the overall mortgage balance, the PST on the premium must be paid upfront as part of your closing costs.
If you’re buying a home in one of these three provinces, it’s extremely important to calculate the amount you can expect to pay in tax to avoid unwanted surprises that may cause delays at the time of closing.
Manitoba COVID-19 PST update
In Manitoba, the PST requirement on CMHC mortgage insurance premiums has been removed as part of its relief package for the COVID-19 pandemic. Consult with your nesto advisor or check your provincial website to see what concessions, if any, are available in your province.
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