Under the federal Bank Act, above what loan-to-value ratio must a bank's residential purchase mortgage be covered by mortgage default insurance?
Correct Answer
A) Above 80%
Bank Act s. 418(1) bars a bank from making a residential mortgage loan for purchase, renovation or improvement where the loan (plus any prior or equal-ranking mortgage) would exceed 80% of the property's value. Under s. 418(2)(b), the restriction does not apply if the amount above that limit is insured by a government agency or a private insurer approved by the Superintendent. So mortgages above 80% loan-to-value need default insurance.
Why This Is the Correct Answer
This is correct because s. 418 of the Bank Act sets 80% of the property's value as the maximum uninsured residential mortgage a bank may make. Above 80% loan-to-value, the excess must be insured by a government agency or an approved private insurer.
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