At what loan-to-value ratio does a mortgage require default insurance from CMHC or a private insurer?

Q: What is the correct answer to: At what loan-to-value ratio does a mortgage require default insurance from CMHC or a private insurer?

The correct answer is Above 80%. Option B is correct because Canadian federal regulations mandate that any mortgage with a loan-to-value ratio exceeding 80% must be insured by an approved mortgage insurer (CMHC, Genworth Financial, or Canada Guaranty). This means borrowers with less than a 20% down payment require high-ratio mortgage insurance. The 80% threshold is established by OSFI guidelines and is consistently applied across all federally regulated financial institutions. This insurance protects lenders against default risk and enables them to offer mortgages to borrowers with smaller down payments.

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

Mortgage default insurance in Canada is governed by federal regulations administered by OSFI. The system distinguishes between conventional mortgages (80% LTV or less) and high-ratio mortgages (above 80% LTV). High-ratio mortgages must be insured by approved providers: CMHC (government), Genworth Financial, or Canada Guaranty (private insurers). Insurance premiums range from 0.6% to 4.5% of the mortgage amount, typically added to the mortgage principal. The 80% threshold balances accessibility to homeownership with prudent risk management, ensuring lenders are protected while allowing qualified borrowers to purchase with smaller down payments.

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

Remember '80/20 vision' - you need 20% down payment to have clear vision of avoiding mortgage insurance. Above 80% LTV means you're in the 'insurance zone' where you need protection. Think of it as the 'Pareto Principle' of mortgages - 80% is the critical threshold that separates conventional from high-ratio mortgages. When you see LTV ratio questions, immediately think '80/20 vision.' If the LTV is above 80% (or down payment below 20%), insurance is required. This simple rule helps you quickly identify high-ratio mortgage scenarios on the exam.

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

Look for the 80% LTV threshold in mortgage insurance questions. Remember that above 80% LTV equals high-ratio mortgage equals mandatory insurance. Don't confuse with other thresholds like 95% maximum LTV for insured mortgages.

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

A first-time homebuyer wants to purchase a $500,000 home with a $75,000 down payment (15% down). Their mortgage amount would be $425,000, creating an 85% LTV ratio. Since this exceeds 80%, they must obtain mortgage default insurance. The insurance premium would be approximately 3.1% of the mortgage amount ($13,175), which can be added to the mortgage principal. As their real estate professional, you'd need to factor this additional cost into their affordability calculations and explain how it affects their monthly payments and total borrowing costs.

Question

Mortgage & Real Estate FinanceMortgage InsuranceEASY

At what loan-to-value ratio does a mortgage require default insurance from CMHC or a private insurer?

Answer Options

A

Above 75%

B

Above 80%

C

Above 85%

D

Above 90%