At what loan-to-value ratio does a mortgage require default insurance from CMHC or a private insurer?
Correct Answer
B) Above 80%
Mortgages with a loan-to-value ratio above 80% (a down payment of less than 20%) are high-ratio mortgages and must carry mortgage default insurance from CMHC, Sagen (formerly Genworth Canada) or Canada Guaranty. For banks, the Bank Act s. 418 bars residential mortgage loans above 80% of the property's value unless they fall under an exception such as insurance. The insurance protects the lender against borrower default.
Why This Is the Correct Answer
This answer is correct because a mortgage with a loan-to-value ratio above 80% is a high-ratio mortgage and must be insured. Bank Act s. 418 prohibits banks from making residential mortgage loans above 80% of the property's value unless an exception such as default insurance applies. The approved insurers are CMHC, Sagen (formerly Genworth Canada) and Canada Guaranty.
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