At what loan-to-value ratio does a mortgage require default insurance in Canada?
Correct Answer
B) Above 80%
A mortgage with a loan-to-value ratio above 80% is a high-ratio mortgage. Bank Act s. 418 bars a bank from lending more than 80% of a home's value unless the excess is insured or guaranteed, so borrowers with less than 20% down need default insurance from CMHC, Sagen or Canada Guaranty.
Why This Is the Correct Answer
This answer is correct: above 80% loan-to-value the mortgage is high-ratio, and Bank Act s. 418 requires the portion above 80% to be insured or guaranteed. In practice this means a borrower with less than 20% down needs mortgage default insurance.
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