What a mortgage insurance premium means in Canada and how the cost is typically added to the mortgage balance.
A mortgage insurance premium is the cost charged for mortgage default insurance on an eligible insured mortgage.
Borrowers often understand that insurance is required below 20% down but do not always appreciate the separate cost of that insurance. The premium raises the effective borrowing cost even when it is not paid as cash on closing day.
In Canada, the premium is usually calculated as a percentage of the mortgage amount, with the percentage depending largely on the down payment size. The premium is often added to the mortgage principal rather than paid upfront in full.
That means the borrower can end up paying interest on the premium over time because it becomes part of the financed balance.
If a borrower buys with 10% down, the lender may arrange an insured mortgage and the corresponding premium can be added to the mortgage balance. The borrower may not feel the full cost immediately in cash, but the balance being repaid is still higher.
The premium is not the same thing as the insurance product itself. The insurance is the lender-protection structure. The premium is the cost of obtaining it.
Borrowers also sometimes confuse the premium with homeowner insurance or title insurance. They are different charges serving different purposes.
Premium tables and eligibility rules can change. Provincial tax treatment on the premium can also differ from the financed mortgage amount itself.