At what down payment threshold does a homebuyer no longer require mortgage default insurance in Canada?

Q: What is the correct answer to: At what down payment threshold does a homebuyer no longer require mortgage default insurance in Canada?

The correct answer is 20% of purchase price. Option B is correct because federal mortgage insurance regulations mandate that all mortgages with loan-to-value ratios exceeding 80% (down payments less than 20%) must carry mortgage default insurance. Once a borrower provides a 20% down payment, they achieve an 80% loan-to-value ratio, qualifying for a conventional mortgage that does not require default insurance. This threshold is consistently applied across all federally regulated lenders and mortgage insurers in Canada.

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

Mortgage default insurance protects lenders when borrowers default, enabling them to offer mortgages with down payments as low as 5%. In Canada, three providers offer this insurance: CMHC (government), Genworth, and Canada Guaranty (private). Insurance is mandatory for all high-ratio mortgages (loan-to-value above 80%). The premium ranges from 0.6% to 4.5% of the mortgage amount, depending on down payment size and amortization period. This system balances homeownership accessibility with lender risk management, supporting Canada's housing market stability.

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

Remember '80/20 Vision' - when you have 20% down, you get 80% financing with clear vision (no insurance fog). Just like the Pareto Principle, 20% down payment eliminates 80% of the insurance headache. When you see mortgage insurance questions, immediately think '80/20 Vision.' If the down payment is 20% or more, you have clear vision - no insurance required. Less than 20% means foggy vision - insurance needed.

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

Look for the 20% threshold in mortgage insurance questions. Any down payment of 20% or higher means conventional mortgage with no insurance required. Below 20% always requires insurance.

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

Sarah is purchasing a $500,000 home and has saved $100,000 for a down payment (20%). Her mortgage broker explains that because she meets the 20% threshold, she qualifies for a conventional mortgage without default insurance, saving her approximately $19,000 in insurance premiums. If she had only $95,000 (19% down), she would need insurance, adding significant cost to her mortgage.

Question

Mortgage & Real Estate FinanceMortgage InsuranceEASY

At what down payment threshold does a homebuyer no longer require mortgage default insurance in Canada?

Answer Options

A

15% of purchase price

B

20% of purchase price

C

25% of purchase price

D

30% of purchase price