Under Ontario's TRESA, what is the minimum mortgage default insurance premium rate for a conventional mortgage with a 5% down payment?

Q: What is the correct answer to: Under Ontario's TRESA, what is the minimum mortgage default insurance premium rate for a conventional mortgage with a 5% down payment?

The correct answer is 4.00% of the mortgage amount. Option C is correct because CMHC's mortgage default insurance premium for a 95% loan-to-value ratio (5% down payment) is 4.00% of the mortgage amount. This is the highest premium rate in CMHC's tiered structure, reflecting the increased risk associated with minimal down payments. The rate is standardized across Canada and applies to all conventional mortgages requiring default insurance in this LTV category.

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

Mortgage default insurance is mandatory in Canada for mortgages with less than 20% down payment (high-ratio mortgages). CMHC, Genworth, and Canada Guaranty provide this insurance with standardized premium rates based on loan-to-value ratios. The premium can be paid upfront or added to the mortgage amount. Rates range from 0.60% for 80% LTV to 4.00% for 95% LTV. Under TRESA, Ontario agents must ensure clients understand these costs and their impact on affordability. The insurance protects lenders, not borrowers, but enables homeownership with smaller down payments.

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

Remember '5 down, 4 percent around' - when someone puts 5% down, they pay 4% premium all around (4.00%). The minimum down payment (5%) corresponds to the maximum premium rate (4%). When you see 5% down payment in a question, immediately think 4.00% premium rate. The inverse relationship between down payment and premium rate helps: lowest down = highest premium.

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

Look for the loan-to-value ratio first. 5% down = 95% LTV = 4.00% premium. Don't confuse this with other LTV categories that have lower rates.

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

A first-time homebuyer in Toronto wants to purchase a $600,000 condo with 5% down ($30,000). Their mortgage amount is $570,000, requiring CMHC insurance. The premium is 4.00% × $570,000 = $22,800, which can be added to the mortgage. As their agent, you must explain this cost under TRESA disclosure requirements and help them understand how it affects their monthly payments and total borrowing costs over the mortgage term.

Question

Mortgage & Real Estate FinanceMortgage Default InsuranceONMEDIUM

Under Ontario's TRESA, what is the minimum mortgage default insurance premium rate for a conventional mortgage with a 5% down payment?

Answer Options

A

2.80% of the mortgage amount

B

3.10% of the mortgage amount

C

4.00% of the mortgage amount

D

4.50% of the mortgage amount