A Guide to Lenders Mortgage Insurance in Canada
Understanding Lenders Mortgage Insurance (LMI) in Canada
What Is LMI?
When applying for a mortgage, you know you’ll need a down payment. However, if your down payment is less than 20%, you’ll likely need to purchase Lenders Mortgage Insurance (LMI).
LMI protects the lender—not the homebuyer—if mortgage payments are not made. If you refinance your home and have less than 20% equity, you may also need to pay for LMI.
The cost of LMI is a one-time premium based on your mortgage amount, ranging from 0.6% to 4.5%. This fee can either be paid upfront or added to your mortgage, which will increase the total amount you owe.
How Does LMI Work?
Homebuyers putting down less than 20% must cover the gap with LMI. Some buyers—such as those who are self-employed or have lower credit scores—may be required to purchase LMI even with a 20% down payment.
LMI is arranged by the lender during the mortgage application process. The premium is based on the loan-to-value ratio. For example:
A 5% down payment (borrowing 95%) comes with a 4% LMI premium.
A 15% down payment (borrowing 85%) has a 2.8% LMI premium.
When Is LMI Required?
You will need LMI if:
Your down payment is less than 20% of the home’s value.
Your lender requires it due to a low credit score.
You are refinancing and have less than 20% home equity.
LMI may be necessary to secure a mortgage, especially for buyers with lower credit or limited savings.
LMI Cost Breakdown
To calculate LMI, multiply your mortgage amount by the premium rate. For example:
Borrowing $300,000 with a 2.8% premium = $8,400 LMI cost.
Borrowing $300,000 with a 4% premium = $12,000 LMI cost.
In Ontario, Manitoba, and Quebec, LMI is subject to tax, which must be paid upfront.
Reducing LMI Costs
A larger down payment reduces or eliminates LMI costs. Paying LMI upfront instead of adding it to the mortgage can also save on long-term interest.
If you have questions about LMI, speak with your lender to understand your options and how it affects your home purchase.
