Mortgage insurance is insurance that covers the dollar amount of your mortgage, in case you default. If you were to die or become seriously ill and unable to pay your mortgage, mortgage insurance would pay off the remaining balance of your mortgage.
In Canada, every mortgage that is purchased with less than a 25% down payment is required to carry mortgage insurance. The majority of this insurance coverage is provided by a Crown corporation called Canada Mortgage and Housing Corporation, or CMHC.
In the past year, approximately 45% of all home buyers in Canada were required to buy mortgage insurance, a total of 1.6 billion dollars worth of insurance. Typically the cost of this insurance is rolled into your monthly mortgage payment so there are no added premiums to pay.
Mortgage insurance allows people with limited savings to buy a home earlier by guaranteeing the full