At what loan-to-value ratio does a mortgage require default insurance in Canada?

Q: What is the correct answer to: At what loan-to-value ratio does a mortgage require default insurance in Canada?

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 carry mortgage default insurance. This means borrowers with down payments less than 20% of the property's value must obtain insurance from CMHC, Genworth Financial, or Canada Guaranty. This threshold is established under the National Housing Act and enforced by federal banking regulations to protect lenders and maintain stability in the mortgage market.

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

Loan-to-value ratio is calculated by dividing the mortgage amount by the property's appraised value or purchase price (whichever is lower). In Canada, mortgages are classified as conventional (LTV ≤ 80%) or high-ratio (LTV > 80%). High-ratio mortgages require default insurance, which protects lenders against borrower default. The three approved mortgage insurers are CMHC (government-backed), Genworth Financial, and Canada Guaranty (both private). Insurance premiums range from 0.6% to 4.5% of the loan amount, depending on LTV ratio and other factors. This system enables broader homeownership access while maintaining lending standards and financial system stability.

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

Remember the classic 80/20 rule: 80% mortgage, 20% down payment is the magic threshold. Think '80 and Above = Insurance Required.' Picture a scale tipping at 80% - once it tips past this point, insurance becomes mandatory to balance the risk. When you see LTV questions, immediately think of the 80/20 split. If the LTV is above 80% (or down payment below 20%), insurance is required. This simple rule applies to most Canadian mortgage insurance questions.

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

Look for the 80% threshold in mortgage questions. Remember that 'above 80%' means insurance is required, which corresponds to down payments less than 20%. Don't confuse this with other lending ratios like debt service ratios.

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

Sarah wants to buy a $500,000 home with a $50,000 down payment (10%). Her mortgage amount would be $450,000, creating an LTV of 90% ($450,000 ÷ $500,000). Since this exceeds 80%, she must obtain mortgage default insurance. The insurance premium at 90% LTV would be approximately 4% of the loan amount ($18,000), which can be added to the mortgage or paid upfront. Without this insurance, no Canadian lender would approve her mortgage application.

Question

Mortgage & Real Estate FinanceMortgage InsuranceEASY

At what loan-to-value ratio does a mortgage require default insurance in Canada?

Answer Options

A

Above 75%

B

Above 80%

C

Above 85%

D

Above 90%