4 Types of Mortgage-Related Insurance Every Homebuyer Should Know

Tim Lyon • September 18, 2025

Understanding the different types of insurance that come up in the mortgage process, and which ones you actually need.

Buying a home comes with a lot of moving parts, and insurance is one of those topics that often causes confusion. Some policies are mandatory, others are optional, and a few mainly protect the lender rather than you.

To make things easier, here’s a breakdown of the four main types of insurance you’ll hear about during the mortgage process — what they mean, when they apply, and how they affect you.


The Four Types of Insurance

  1. Default Insurance (CMHC, Sagen, Canada Guaranty)
  2. Title Insurance
  3. Mortgage Life Insurance
  4. Homeowner Insurance


Let’s go through each one.


1. Default Insurance

Often called “CMHC insurance,” this protects the lender if you default and your home sells for less than what you owe.

  • When it’s required: If your down payment is less than 20%
  • Applies to: Homes under $1.5 million
  • Cost: Added to your mortgage and paid over time
  • Key point: Even though it protects the lender, you pay the premium. Lenders sometimes offer slightly lower rates on insured mortgages, but the added cost usually makes them more expensive overall.


2. Title Insurance

Title insurance protects against ownership issues such as fraud, survey errors, or undiscovered problems with the property.

  • Lender policy: Usually required to protect the bank
  • Owner policy: Optional, but recommended since it protects you directly
  • Cost: One-time fee (often under $400) that covers you for as long as you own the property


3. Mortgage Life Insurance

This is life and disability insurance that covers the mortgage if you pass away or can’t work due to illness or injury.

  • Optional: Not required by your lender
  • Cost: Based on your age, health, and mortgage size
  • Note: As a broker, I offer Manulife MPP which is great for interim coverage since it kicks in right away and has a 60-day money-back guarantee. That said, I always recommend speaking with an insurance advisor to find a plan that’s best for you long term.



4. Homeowner Insurance

Also called property insurance, this protects the home itself against risks like fire, theft, or flooding.

  • Mandatory: Required by lenders before closing (if you are buying a condo, the strata insurance is likely sufficient for the lender but its always wise to look at adding your own to conver any gaps.)
  • Timing: Proof of insurance must be provided to your lawyer before signing final paperwork
  • Flexibility: You can shop around, but the policy needs to meet lender requirements


Why This Matters

Understanding these insurance types helps you:

  • Avoid surprises during the mortgage process
  • Know which costs are mandatory versus optional
  • Protect both your investment and your peace of mind


Real-World Example

A first-time buyer purchases a condo for $700,000 with a 10% down payment ($70,000).

  • Because their down payment is under 20%, they need default insurance. The premium (about $19,000) is added to their mortgage.
  • Their lawyer requires proof of homeowner insurance before closing, which costs about $1,200 per year.
  • The lender gets a title insurance policy, and the buyer also chooses their own for $200 to protect against fraud or defects.
  • The couple takes out interim mortgage life insurance (MPP), then later switches to independent coverage through an insurance advisor.

By knowing what each insurance covers, they’re prepared for every step of the process.


Quick Summary

• Default Insurance: Mandatory under 20% down — protects the lender
• Title Insurance: One-time cost — protects you against fraud and title issues
• Mortgage Life Insurance: Optional — covers the loan if you pass away or can’t work
• Homeowner Insurance: Mandatory — protects the property itself


Next Steps

If you’re getting ready to buy a home, take a little time to understand which insurances apply to your situation. Some are required, some are optional — but all play an important role in your financial plan.

If you’d like help navigating this process, I’m just a call or email away. Book a consultation or call 778-988-8409.


Mortgage Term Glossary

Amortization: The total length of time to pay off your mortgage (usually 25–30 years in Canada)

Default Insurance: Insurance required with less than 20% down, protecting the lender if you default

Down Payment: The upfront portion of the home price that you pay out of pocket

Equity: The difference between your home’s value and what you owe

Homeowner Insurance: Policy that protects your property against risks like fire, theft, and flooding

Mortgage Insurance: Life/disability coverage that pays your mortgage if you can’t

Mortgage Term: The length of your mortgage contract (typically 1–5 years)

Title Insurance: Insurance that protects against fraud or disputes over property ownership

 


Tim Lyon

Mortgage Consultant

25 Year vs 30 Year Amortization: A Practical Guide

By Tim Lyon • January 25, 2026
Trying to choose between a 25 and 30 year mortgage amortization? Learn how each affects your payments, interest, and flexibility so you can decide with confidence.

How Rental Income Impacts Your Mortgage Approval (And Why Lender Choice Matters)

By Tim Lyon • January 20, 2026
If you are buying a home with a suite, keeping your current home as a rental, or already own a rental property, mortgage qualification can get confusing fast. The frustrating part is that you can do everything “right” and still get very different answers depending on which lender you talk to. Here’s a simple breakdown so you understand it and don’t miss out. What are Debt Service Ratios? In Canada, lenders qualify you using two main ratios: Gross Debt Service (GDS) This looks at housing costs only , typically: Mortgage payment Property taxes Heating 50% of strata fees (if applicable) GDS typically needs to be 39% or less of your gross income. Total Debt Service (TDS) This includes everything in GDS , plus other debts like: Car loans Credit cards Lines of credit Student loans TDS typically needs to be 44% or less of your gross income. These ratios are the foundation. If they do not work, the lender will not approve the mortgage, even with strong credit and a solid down payment. How Lenders Treat Rental Income Most people assume lenders look at rental properties based on simple cash flow (rent minus mortgage payment). In reality, most lenders use one of two methods: 1) Addback A percentage of the rental income is added to your gross income for qualification purposes. 2)Offset A percentage of the rental income is subtracted from the mortgage payment tied to the rental property. Different lenders use different percentages and different worksheets. That is why the same borrower can qualify with one lender and fail with another. Benefits of Understanding Lender Methods When you understand how rental income is calculated, you can: Avoid being under-qualified by a lender with conservative rules Get a more accurate picture of your real purchasing power Choose a lender that fits your situation (instead of forcing your situation to fit the lender) Important Considerations A few key points to keep in mind: Rental income is rarely counted at 100% , but some lenders are more generous than others. The method matters just as much as the percentage (addback vs offset). If you own multiple properties, lender worksheets can change the result dramatically. Your lender choice is a strategy decision , not just a rate decision. Real-World Example: Same Clients, Two Very Different Outcomes Here’s an example comparing lenders Scotiabank and Strive, using a fictitious couple: Scenario Household income: $160,000 Existing townhome: $800,000 value with a $525,000 mortgage ( $2,500/month payment) Market rent for the townhome: $3,400/month New purchase: property with a rental suite generating $1,800/month Down payment: 10% Other debts: student loan $165/month , car loan $500/month How Scotiabank viewed it For the townhome rental, they counted half the rent and subtracted the mortgage payment, leaving an $800/month shortfall that gets added into the debt ratios. For the new purchase, 50% of the suite income gets added to income. Max mortgage : $650,700 Max purchase price : $723,000 How Strive viewed it For the townhome rental, Strive used a rental worksheet and calculated $5.20/month of income that can be added to the application. For the new purchase, 100% of the suite income gets added to income, and they did not need to include taxes or heat. Max mortgage : $878,400 Max purchase price : $976,000 The result That’s a $253,000 difference in purchasing power , with the same clients, same income, same debts, and same properties. The difference was lender policy. Quick Summary GDS and TDS ratios are the backbone of mortgage qualification. Rental income is usually counted using Addback or Offset , and each lender handles this differently. Two lenders can produce wildly different results, even with the exact same file. In the example above, lender choice created a $253,000 swing in purchasing power. Next Steps If you are planning to: Buy a home with a suite Keep your current home and convert it to a rental Use rental income to qualify Reach out and I will run the numbers across multiple lenders so you see what you actually qualify for, not just what one lender will allow. Need help with your mortgage? Book a consultation or call 778-988-8409 . Glossary Addback : A method where a lender adds a percentage of rental income to your gross income for qualification. Gross Debt Service (GDS) : The ratio that measures housing costs as a percentage of gross income. Offset : A method where a lender subtracts a percentage of rental income from the rental property’s mortgage payment for qualification. Total Debt Service (TDS) : The ratio that measures housing costs plus other debts as a percentage of gross income.