Mortgage Insurance vs. Homeowners Insurance

Understanding the Key Differences between Mortgage insurance and home insurance is Important

Mortgage vs Home Insurance

When buying a home in Canada, understanding the different types of insurance available is crucial for protecting both your investment and your financial security. Two terms that often cause confusion are mortgage insurance and homeowners insurance. While they sound similar, they serve very different purposes. Knowing the distinction between the two can help you make informed financial decisions and avoid costly misunderstandings.

Let’s break down what each type of insurance covers, when it’s required, and how both play a vital role in homeownership.

What is Mortgage Insurance?

Mortgage insurance, often called mortgage default insurance, protects the lender—not the borrower—if you fail to make your mortgage payments. In Canada, this type of insurance is typically required by lenders when your down payment is less than 20% of the home’s purchase price.

This coverage ensures that the lender is reimbursed if you default on your mortgage, allowing financial institutions to offer lower down payments and better mortgage rates to qualified buyers.

The main providers of mortgage default insurance in Canada are:

• Canada Mortgage and Housing Corporation (CMHC)

• Sagen™ (formerly Genworth Canada)

• Canada Guaranty

What is Homeowners Insurance?

Homeowners insurance, on the other hand, protects you, the homeowner. It provides financial coverage for damage or loss to your home, personal belongings, and liability in case someone is injured on your property.

Typical homeowners insurance policies in Canada include:

• Dwelling coverage – for damage to the structure (e.g., fire, wind, vandalism)

• Personal property coverage – for belongings such as furniture and electronics

• Liability coverage – for injuries or property damage to others

• Additional living expenses – if you need temporary housing due to home damage

Homeowners insurance is not legally required in Canada, but most mortgage lenders will insist you have it before approving your loan.

Key Differences Between Mortgage Insurance and Homeowners Insurance

Feature	Mortgage Insurance	Homeowners Insurance
Who it protects	The lender	The homeowner
Purpose	Covers lender losses if borrower defaults	Covers homeowner losses due to damage or theft
Required by law?	Yes, for down payments under 20%	Not legally required, but strongly recommended
Premiums paid by	The borrower	The homeowner
Type of coverage	Financial protection for lenders	Property and liability protection for owners

When is Mortgage Insurance Required in Canada?

In Canada, if you purchase a home with less than a 20% down payment, mortgage default insurance is mandatory under federal law. It’s designed to stabilize the housing market by reducing lender risk and allowing more Canadians to enter the market with smaller down payments. Premiums are usually added to your mortgage amount and paid over time. The rate depends on your loan-to-value (LTV) ratio—higher LTVs result in higher premiums.

Benefits of Homeowners Insurance for Canadian Homeowners

While not legally required, homeowners insurance offers peace of mind by protecting you from unexpected events. Whether it’s a burst pipe, theft, or natural disaster, coverage ensures you’re not left facing massive repair or replacement costs out of pocket.

It also provides liability protection—an often-overlooked feature that can save you thousands if someone is injured on your property.

Costs Associated with Mortgage Insurance and Homeowners Insurance

Mortgage insurance premiums range from 2.8% to 4.0% of your mortgage amount, depending on your down payment. Homeowners insurance, meanwhile, typically costs between $800 and $2,000 per year depending on the home’s value, location, and coverage level.

Unlike homeowners insurance, mortgage insurance offers no direct financial protection to the borrower—it’s a cost tied to your mortgage terms.

How to Choose the Right Insurance for Your Needs

Start by evaluating your down payment amount, property value, and risk tolerance.

• If you’re buying with less than 20% down, mortgage insurance will likely be mandatory.

• Regardless, homeowners insurance is highly recommended to safeguard your home and personal assets.

Review policy options carefully, compare quotes, and don’t hesitate to consult an insurance broker or mortgage advisor.

Common Misconceptions About Mortgage and Homeowners Insurance

• My mortgage insurance protects my home. (False – it protects your lender.)

• I can skip homeowners insurance once I own my home outright. (Risky – it leaves you financially exposed.)

• Mortgage insurance is optional with any down payment. (Not true – it’s required under 20%.)

Understanding these distinctions helps prevent unpleasant surprises later.

Conclusion: Making Informed Insurance Decisions in Canada

Both mortgage insurance and homeowners insurance play important—but very different—roles in protecting your homeownership journey. Mortgage insurance helps you qualify for a mortgage with a smaller down payment, while homeowners insurance safeguards your property and peace of mind.

By understanding how each works and when they apply, you can make confident, informed decisions that protect both your investment and your financial future.

Your Mortgage expert in BC

For answers to these questions and many more check out our services in Penticton, Summerland and Kelowna.