A BC buyer purchases a home for $850,000 with a 10% down payment. How much is the CMHC mortgage insurance premium approximately, assuming a 4.00% premium rate on the insured amount?

Q: What is the correct answer to: A BC buyer purchases a home for $850,000 with a 10% down payment. How much is the CMHC mortgage insurance premium approximately, assuming a 4.00% premium rate on the insured amount?

The correct answer is $30,600 added to the mortgage balance. Option B is correct. With a 10% down payment on an $850,000 home: down payment = $85,000, mortgage amount = $765,000. At a 4.00% premium rate (applicable to 90% LTV): premium = $765,000 x 4.00% = $30,600. CMHC allows this premium to be added to the mortgage balance, making the total mortgage $795,600. The answer specifies the premium is added to the mortgage balance, which is the standard practice.

Q: What background knowledge is needed for this Mortgage & Real Estate Finance question?

CMHC mortgage insurance is required in Canada when the down payment is less than 20% of the purchase price. The premium rate depends on the loan-to-value (LTV) ratio: 2.80% for up to 80% LTV, 3.10% for 80.01-85% LTV, and 4.00% for 85.01-90% LTV. The maximum purchase price for insured mortgages is $1,000,000. The premium is typically added to the mortgage balance rather than paid upfront, meaning the borrower pays interest on the insurance premium over the life of the mortgage.

Q: What is a good way to remember the answer to this Mortgage & Real Estate Finance question?

For 10% down (90% LTV): the CMHC premium is 4% of the MORTGAGE amount (not the purchase price). Calculate the mortgage first, then apply 4%. The premium gets ADDED to the mortgage balance. On the exam: (1) Calculate mortgage = price minus down payment. (2) Apply the premium rate to the mortgage amount. (3) Remember the premium is added to the mortgage, not paid separately.

Q: What exam tip applies to this Mortgage & Real Estate Finance question?

The insurance premium is calculated on the MORTGAGE amount, not the purchase price. This is a common calculation error. Also remember that the premium is typically added to the mortgage balance, increasing the total amount borrowed.

Q: How does this Mortgage & Real Estate Finance concept apply in real world practice?

A buyer purchases a home in Langley for $850,000 with a 10% down payment of $85,000. The mortgage amount is $765,000. CMHC charges a 4.00% insurance premium: $765,000 x 4.00% = $30,600. This premium is added to the mortgage, making the total mortgage balance $795,600. The buyer makes monthly payments on the full $795,600 over their amortization period.

Question

Mortgage & Real Estate FinanceBCMEDIUM

A BC buyer purchases a home for $850,000 with a 10% down payment. How much is the CMHC mortgage insurance premium approximately, assuming a 4.00% premium rate on the insured amount?

Answer Options

A

$30,600

B

$30,600 added to the mortgage balance

C

$34,000

D

$25,500