A client in BC is purchasing a $750,000 strata unit with a 10% down payment. What is the minimum CMHC insurance premium they will pay?

Q: What is the correct answer to: A client in BC is purchasing a $750,000 strata unit with a 10% down payment. What is the minimum CMHC insurance premium they will pay?

The correct answer is $18,900 (2.8% of the mortgage amount). Option C is correct because with a 10% down payment on a $750,000 purchase, the mortgage amount is $675,000 ($750,000 - $75,000). According to CMHC guidelines, mortgages with 10-14.99% down payment (85.01-90% LTV ratio) require a 2.8% insurance premium. Calculating 2.8% of $675,000 equals $18,900. This premium rate reflects the higher risk associated with lower down payments while remaining within CMHC's established tiered premium structure.

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

CMHC mortgage loan insurance is mandatory for high-ratio mortgages (LTV above 80%) in Canada. Premium rates are tiered: 3.0% for 5-9.99% down payment, 2.8% for 10-14.99%, 2.4% for 15-19.99%, and 2.0% for 20%+. The insurance protects lenders against borrower default, enabling them to offer mortgages with lower down payments. Premiums can be paid upfront or added to the mortgage principal. This system facilitates homeownership accessibility while managing lender risk, making it essential knowledge for real estate professionals advising clients on financing options.

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

Visualize climbing down a ladder where each rung represents lower down payments and higher premiums: 20%+ = 2.0% (top rung, lowest premium), 15-19.99% = 2.4%, 10-14.99% = 2.8%, 5-9.99% = 3.0% (bottom rung, highest premium). Remember 'Lower Down, Higher Premium' - as you go down the ladder (lower down payment), the premium percentage climbs up. When you see a down payment percentage, mentally place it on the ladder to find the corresponding premium rate. For 10% down payment, you're on the second-to-bottom rung at 2.8%.

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

Always calculate the mortgage amount first (purchase price minus down payment), then apply the correct premium rate based on down payment percentage. Double-check your LTV ratio calculation to ensure you're using the right premium tier.

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

A first-time homebuyer couple approaches you about purchasing a $750,000 townhouse in Vancouver. They've saved $75,000 for a down payment (10%). You need to explain that their mortgage will be $675,000, plus a mandatory CMHC insurance premium of $18,900 (2.8%). This premium can be added to their mortgage, making their total mortgage $693,900, which affects their monthly payments and total interest costs over the amortization period.

Question

Mortgage & Real Estate FinanceCmhc InsuranceBCMEDIUM

A client in BC is purchasing a $750,000 strata unit with a 10% down payment. What is the minimum CMHC insurance premium they will pay?

Answer Options

A

$13,500 (2.0% of the mortgage amount)

B

$20,250 (3.0% of the mortgage amount)

C

$18,900 (2.8% of the mortgage amount)

D

$16,875 (2.5% of the mortgage amount)