When comparing mortgage options in Canada, it’s easy to focus on the interest rate or upfront fees. But a mortgage with a lower rate isn’t necessarily the least expensive option.
Two costs you might come across are lender fees and mortgage default insurance premiums. Although both can add to your mortgage expenses, they serve different purposes and don’t necessarily apply to the same type of financing.
Here’s what you need to know before making a decision.
What Is a Lender Fee?
A lender fee is a charge some lenders apply when arranging or providing mortgage financing. It’s more common with alternative and private lenders, particularly when borrowers don’t meet traditional lending requirements.
The fee varies depending on the lender, mortgage product, and your financial situation. Some lenders charge a percentage of the mortgage amount, while others may have a fixed fee.
When might a lender fee make sense?
Paying a lender fee may be worthwhile if it helps you access financing that better suits your circumstances.
For example, if you’re self-employed or have credit challenges, an alternative mortgage with a lender fee might be an option.
However, it’s important to compare more than the fee. Consider the interest rate, monthly payments, mortgage term, prepayment penalties, and total borrowing cost.
A mortgage with a relatively low interest rate could still cost more once additional fees are included.
What Is a Mortgage Insurance Premium?
Mortgage default insurance protects the lender, not the homeowner, if the borrower stops making mortgage payments.
In Canada, it’s generally required when purchasing a home with a down payment of less than 20%.
The insurance allows eligible buyers to purchase a home with a smaller down payment, sometimes as low as 5%.
The premium is usually passed on to the borrower. You can generally pay it upfront or add it to your mortgage, although adding it increases your mortgage balance and the interest you’ll pay.
How much does mortgage insurance cost?
The premium depends largely on your down payment and mortgage amount.
Here are the standard CMHC homeowner premium rates for common high-ratio mortgages:
| Down payment | Up to 25 years | 30 years* |
| 15%–19.99% | 2.80% | 3.00% |
| 10%–14.99% | 3.10% | 3.30% |
| 5%–9.99% | 4.00% | 4.20% |
The 30-year rates include CMHC’s additional 0.20 percentage-point premium for eligible extended amortizations. Other premium rules may apply.
What about 30-year insured mortgages?
Eligible first-time homebuyers and buyers of newly built homes may qualify for a 30-year insured amortization through programs such as CMHC Home Start.
The property must meet the program requirements, including a purchase price below $1.5 million.
A longer amortization can reduce monthly payments, but it may also increase the total interest paid over the life of the mortgage.
Ontario Homebuyers: Don’t Forget the Insurance Tax
If you’re purchasing a home in Ontario, there’s another cost to consider.
Ontario charges 8% provincial sales tax on mortgage default insurance premiums.
Unlike the insurance premium itself, this tax cannot be added to your mortgage. You’ll need to pay it as part of your closing costs.
For example, if your mortgage insurance premium is $16,000, the additional Ontario tax would be $1,280.
This is worth including in your budget so you’re not surprised when closing day arrives.
Lender Fee vs. Mortgage Insurance Premium: Which Is Better?
These costs aren’t interchangeable, so choosing between them isn’t simply about finding the smaller percentage.
| Lender fee | Mortgage insurance premium |
| Charged by certain lenders | Charged for mortgage default insurance |
| Often associated with alternative financing | Generally required with less than 20% down |
| Amount varies by lender and product | Calculated using the applicable insurer’s premium rates |
| May be payable upfront or handled according to lender terms | Generally payable upfront or added to the mortgage |
| Does not provide insurance coverage | Protects the lender against default |
A mortgage with a lender fee might suit someone who needs more flexible qualification options. An insured mortgage may be a better fit for a buyer with a smaller down payment who qualifies under an insured lending program.
Keep in mind that some financing arrangements can involve both lender-related fees and mortgage insurance costs.
The better choice depends on your financial circumstances and the overall mortgage terms, not just one fee.
How to Compare Your Mortgage Options
Before choosing a mortgage, ask yourself:
- How much will I pay upfront?
- What will my monthly mortgage payments be?
- Can I afford the mortgage comfortably over time?
- Are there prepayment restrictions or penalties?
- How much will the mortgage cost over the term, including fees and interest?
Looking at the full picture can help you avoid choosing a mortgage that appears cheaper initially but costs more over time.
Need Help Comparing Mortgage Options?
Whether you’re buying your first home, exploring alternative financing, or simply trying to understand mortgage costs, you don’t have to figure everything out on your own.
I can help you compare the available options, understand the fees involved, and find a mortgage that fits your needs and budget.
Explore Mortgage Solutions at Sandra Brown, Mortgage Alliance, or get in touch to discuss your options.