Buying a home in British Columbia is exciting, but the extra costs can be confusing. If your down payment is less than 20% of the home’s price, banks usually force you to buy Private Mortgage Insurance (PMI).
At Seven Lending, we believe you should understand exactly where your money is going. This guide explains how mortgage insurance works, how much it costs, and how our private mortgage solutions can offer you a different path.
What is Private Mortgage Insurance (PMI)?
Private Mortgage Insurance (PMI), officially called Mortgage Default Insurance in Canada, is a policy that protects the lender, not you. If you stop making payments, this insurance pays the bank for its loss. Even though it protects the bank, you pay the bill.
Why does it exist?
Banks see low down payments as “high risk.” If you have less than 20% equity in the home, the law requires this insurance to ensure the bank doesn’t lose money if the housing market drops.
Did you know? In Canada, this insurance is provided by companies like CMHC (Canada Mortgage and Housing Corporation), Sagen, or Canada Guaranty.
How Does Private Mortgage Insurance Work?
PMI works through simple rules based on your home value and loan size:
- Protects the lender: Covers the bank if you can’t pay your mortgage.
- Triggered by LTV: If your Loan-to-Value (LTV) is above 80%, PMI is mandatory.
- Allows earlier home buying: Enter the BC market without a full 20% down payment.
How Does the Math Work? (The 20% Rule)
Understanding the math helps you plan your budget. The rule is simple: The 20% Threshold.
- Low Ratio (Conventional): If you put 20% or more down, you do not need insurance. The bank trusts the equity in the home.
- High Ratio (Insured): If you put less than 20% down, you must pay for insurance
How Much Does Private Mortgage Insurance Cost?
The cost is a percentage of your total loan. The smaller your down payment, the higher the percentage.
| Down Payment | Insurance Premium (Approx.) |
| 5% to 9.99% | 4.00% of loan amount |
| 10% to 14.99% | 3.10% of loan amount |
| 15% to 19.99% | 2.80% of loan amount |
| 20% or more | 0.00% (No Insurance) |
How to Avoid Private Mortgage Insurance
Many borrowers in BC feel stuck. They have good income or strong equity potential, but they don’t fit the strict “perfect box” that banks and CMHC require.
This is where we help.
As a private lender, Seven Lending operates differently from the big banks.
- We Focus on Equity: We look at the value of your property, not just your credit score.
- Higher LTV Limits: We can sometimes offer high-ratio mortgages up to 85% Loan-to-Value (LTV) without requiring CMHC insurance.
- Gap Financing: If you are close to the 20% down payment mark, we can provide a 2nd mortgage to bridge the gap. This helps you avoid paying the high insurance premiums on your primary mortgage.
How to Remove Private Mortgage Insurance
If you already have a mortgage with insurance, you might be wondering if you can cancel it.
In Canada, mortgage default insurance is usually paid upfront or added to the total loan at the start. This means you cannot simply “cancel” the monthly premium once you reach 20% equity.
However, you do have options:
- Refinance: If your home value in Vancouver or the Fraser Valley has gone up, you can refinance. By using your new equity, you might qualify for a conventional loan with no insurance requirements.
- Switch to a B-Lender: If your bank turns you down for a refinance due to credit issues, a private lender can help you access that equity to consolidate debt.
Pros and Cons of Private Mortgage Insurance
Is PMI always bad? Not necessarily. It depends on your goals.
The Pros:
- Buy Sooner: You can buy a home with as little as 5% down.
- Lower Rates: Sometimes, insured mortgages have slightly lower interest rates because the bank takes zero risk.
The Cons:
- High Cost: You lose thousands of dollars in premiums.
- Strict Rules: To qualify for insurance, you must pass the “Stress Test” and have a high credit score.
- No Protection for You: If you get sick or lose your job, this insurance does not pay your mortgage. (That requires separate life/disability insurance).
Frequently Asked Questions (FAQ)
Is PMI the same as homeowner’s insurance?
No. Homeowner’s insurance covers fire, theft, and water damage. PMI only covers the bank if you default on payments.
Can Seven Lending help if I have bad credit?
Yes. Traditional mortgage insurers (CMHC) usually reject borrowers with credit scores under 600. At Seven Lending, we approve mortgages based on house value, not credit score.
Do private lenders charge PMI?
Generally, no. Private lenders charge a slightly higher interest rate or a “lender fee” instead of requiring you to buy a government insurance policy. This is often easier for self-employed borrowers or those with bruised credit.
Know Your Options in BC From an Expert
Private Mortgage Insurance is a tool that helps people buy homes sooner, but it comes at a steep price. Whether you are a first-time buyer in Surrey or a homeowner in Vancouver looking to refinance, you need to know if the cost is worth it.
Don’t let rigid bank rules stop you. If you want to explore uninsured mortgage options or need to access your home’s equity, talk to the experts who live and work right here in BC.Our founder, Raghav Manchanda, is ready to help you navigate your mortgage options. Contact us now to get an immediate solution.