Sarah is purchasing a $500,000 home with a $450,000 mortgage. What is her loan-to-value ratio?
Correct Answer
B) 90%
The loan-to-value ratio is calculated by dividing the mortgage amount by the property value: $450,000 ÷ $500,000 = 0.90 or 90%. This means Sarah has a 10% down payment and will require mortgage default insurance since her LTV exceeds 80%.
Why This Is the Correct Answer
Option B (90%) is correct because the LTV ratio is calculated by dividing the mortgage amount by the property value: $450,000 ÷ $500,000 = 0.90 or 90%. This is a straightforward mathematical calculation that follows the standard LTV formula used by all Canadian lenders and mortgage insurers. The 90% LTV means Sarah is borrowing 90% of the home's value and making a 10% down payment ($50,000). This calculation method is consistent with OSFI guidelines and mortgage insurer requirements across Canada.
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