A borrower wants to purchase a $600,000 home with a 15% down payment. What type of mortgage will they need and what insurance is required?

Q: What is the correct answer to: A borrower wants to purchase a $600,000 home with a 15% down payment. What type of mortgage will they need and what insurance is required?

The correct answer is High-ratio mortgage with CMHC or private mortgage insurance. Option B is correct because a 15% down payment creates an 85% loan-to-value ratio, exceeding the 80% threshold for conventional mortgages. Under Canadian banking regulations and OSFI B-20 guidelines, mortgages above 80% LTV are classified as high-ratio mortgages and mandatory require mortgage default insurance from approved providers like CMHC, Genworth Financial, or Canada Guaranty. This insurance is legally required and protects the lender against borrower default.

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

Canadian mortgages are classified as conventional (≤80% LTV) or high-ratio (>80% LTV). High-ratio mortgages require mortgage default insurance from CMHC, Genworth Financial, or Canada Guaranty. This insurance is mandatory under the Bank Act and OSFI regulations for federally regulated lenders. The insurance premium ranges from 0.6% to 4.5% of the mortgage amount, depending on LTV ratio and other factors. The 20% down payment threshold is fundamental to Canadian mortgage lending and affects qualification, costs, and available products.

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

Remember '20% = No Way' for insurance. If down payment is less than 20%, there's 'no way' to avoid mortgage insurance. Think of it as a protective umbrella - when you have less than 20% equity, you need the insurance umbrella to protect the lender. When you see any down payment percentage in a question, immediately compare it to 20%. Less than 20% = high-ratio mortgage = mandatory insurance required. 20% or more = conventional mortgage = no insurance required.

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

Always calculate the down payment percentage first. If it's less than 20%, automatically know it's a high-ratio mortgage requiring CMHC or private mortgage insurance. Don't get distracted by dollar amounts - focus on the percentage.

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

A young couple wants to buy their first home for $650,000 but only has $80,000 saved (12.3% down). As their realtor, you explain they'll need a high-ratio mortgage with mandatory CMHC insurance, adding approximately $15,000-$20,000 to their mortgage amount. You help them understand the total monthly payment including insurance premiums and connect them with a mortgage broker familiar with high-ratio lending requirements and qualification criteria.

Question

Mortgage & Real Estate FinanceMortgage QualificationMEDIUM

A borrower wants to purchase a $600,000 home with a 15% down payment. What type of mortgage will they need and what insurance is required?

Answer Options

A

Conventional mortgage with no insurance required

B

High-ratio mortgage with CMHC or private mortgage insurance

C

Jumbo mortgage with special lending criteria

D

Commercial mortgage with business insurance