In Canada, mortgage default insurance can be obtained by either the borrower or the lender, and is mandatory for borrowers with down payments below 20 per cent.Graeme Roy/The Canadian Press
Canada’s biggest banks have effectively turned mortgages into cash machines, but the risks have not disappeared. They’ve been redistributed. Default rates may be low but riskier mortgages still exist, and when defaults occur, someone absorbs the losses.
Canada’s mortgage lenders can be broadly divided into four categories: banks, credit unions, mortgage finance companies (MFCs), and mortgage investment entities (MIEs). Most lenders in the first three categories primarily serve prime borrowers and generally carry mortgages with relatively low risk.
MIEs, which include mortgage investment corporations (MICs) and private lenders, focus on private mortgage lending to subprime borrowers, exposing their investors to significantly higher risk.
MIEs can generate stronger returns by charging elevated rates on private mortgages, and most continue to deliver on those returns. A few, however, have struggled in recent periods to maintain consistency or meet investor redemption requests.
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Risk is not confined to subprime lending either. Even prime mortgages carry some risk when down payments are small, and this is precisely where mortgage insurers step in.
In Canada, mortgage default insurance can be obtained by either the borrower or the lender, and is mandatory for borrowers with down payments below 20 per cent. When a mortgage exceeds 80 per cent of a home’s value, a default may leave sale proceeds insufficient to cover the outstanding loan. Mortgage insurance transfers that risk from the lender to the insurer.
Canada’s three default insurers, government-owned CMHC, and private firms Sagen and Canada Guaranty, absorb a substantial share of this risk. Despite being privately owned, both Sagen and Canada Guaranty carry a federal government guarantee, leaving taxpayers indirectly on the hook.
That exposure has been deliberately reduced since 2016, when federal policy changes capped insurable home values at $1-million, limited amortizations to 25 years, and introduced a mandatory stress test, driving the steady decline in insured residential mortgage volumes shown above.
Some thresholds have since been eased, with the price cap now at $1.5-million and 30-year amortizations available to first-time buyers and new-build purchasers. But the broader trend of shrinking government-backed exposure remains intact.
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Here is the most striking finding: insured mortgages are far safer than commonly assumed. In 2024, CMHC collected $2.3-billion in premiums and fees yet paid out just $45-million in claims across its $440-billion portfolio – a loss rate of 0.01 per cent.
Even focusing exclusively on the non-rental segment, by excluding CMHC’s $213-billion multi-unit residential portfolio, claims amounted to just $38-million on a $227-billion portfolio, or a loss rate of 0.02 per cent. Both figures have fallen further in 2025, leaving Canada’s insured mortgage market generating losses that are barely measurable.
The data tells a consistent story: a decade of policy tightening has meaningfully reduced the government’s footprint in Canada’s mortgage market, leaving taxpayer exposure to mortgage losses at minimal levels.
The recent slight loosening of insurance rules may slightly change that trajectory, but for now, the risk to taxpayers remains extremely low.
Hanif Bayat, PhD, is the CEO and founder of WOWA.ca, a Canadian personal finance platform.
