Do You Pay PST on Mortgage Default Insurance in Canada?

When you’re buying a home in Canada with less than a 20% down payment, there’s one extra cost you can’t avoid — mortgage default insurance. And if you’re buying in Manitoba, Ontario, or Quebec, there’s an added twist: you’ll also need to pay Provincial Sales Tax (PST) on that insurance. While the insurance premium gets rolled into your mortgage, the PST has to be paid out of pocket at closing. If you’re not ready for it, it could be an expensive surprise.

Let’s break down how this works and what it means for your budget.

What Is Mortgage Default Insurance?

Also known as CMHC insurance, mortgage default insurance is mandatory in Canada if your down payment is below 20%. It protects lenders in case you default on your loan, and in exchange, it allows Canadians to buy homes with as little as 5% down on the first $500,000 (and 10% on any amount above that).

The insurance premium is calculated as a percentage of your mortgage and usually ranges between 2.8% to 4%, depending on how much you put down. This premium is added to your mortgage and paid off over time — so you’re not paying it upfront.

But here’s the kicker: PST on that premium is due upfront, and that’s where many buyers get caught off guard.

PST on Mortgage Insurance: Which Provinces Charge It?

Currently, only three provinces charge PST on mortgage insurance premiums:

• Ontario: 8%
• Quebec: 9%
• Manitoba: 7% (but with some COVID-era relief caveats — more on that below)

If you’re buying a home in any other province, you don’t need to worry about this tax.

Let’s Look at a Real Example

Imagine you’re buying a home in Quebec and your mortgage default insurance premium comes out to $8,000. Since Quebec charges a 9% sales tax on insurance:

9% of $8,000 = $720 in PST

That $720 is due at closing, on top of your down payment and other closing costs. It’s not optional — and it’s not small.

Why Is PST on Insurance Not Rolled Into Your Mortgage?

While mortgage insurance premiums are typically added to your total mortgage amount, PST is considered a tax — not a part of your loan. Lenders can’t finance it, so it needs to come out of your pocket directly. This is why it’s included in your closing costs, along with legal fees, title insurance, land transfer tax, and more.

What About Manitoba’s COVID-19 Relief?

In Manitoba, there was a brief exception during the pandemic. As part of a COVID-19 relief package, PST on CMHC insurance was temporarily waived. This was a welcome break for homebuyers already stretched thin.

But relief measures don’t last forever. If you’re planning to buy in Manitoba, it’s a good idea to check your provincial website or consult a mortgage advisor to see whether this exemption is still active.

Who Offers Mortgage Insurance in Canada?

There are three major mortgage insurance providers in Canada:

• CMHC (Canada Mortgage and Housing Corporation) – the only public provider
• Canada Guaranty
• Sagen (formerly Genworth Financial)

While CMHC often sets the benchmark, private insurers didn’t adopt CMHC’s stricter qualification rules from July 2020, making it slightly easier to qualify for a mortgage with them in certain cases.

💡 Tip: You don’t get to choose your insurer — your lender does. But it’s worth asking your mortgage broker whether you could benefit from a private insurer’s looser qualification rules.

Final Word: Don’t Let PST Catch You Off Guard

The sales tax on mortgage default insurance is one of those sneaky costs that catches many first-time buyers by surprise. It’s not huge compared to your total mortgage, but it can mean the difference between being able to close — or scrambling at the last minute.

If you’re buying in Ontario, Quebec, or Manitoba, be sure to factor in the PST on your CMHC insurance premium when calculating your closing costs. And as always, work with a mortgage broker who can help you prepare for every detail.