Which scenario would require mortgage default insurance?
Correct Answer
B) A borrower purchasing a $400,000 home with a $60,000 down payment
Mortgage default insurance is required when the loan-to-value ratio exceeds 80%. Option B has an LTV of 85% ($340,000/$400,000), requiring insurance. The other options have LTVs of 75%, 75%, and 75% respectively.
Why This Is the Correct Answer
Option B is correct because it results in an LTV ratio of 85% ($340,000 mortgage ÷ $400,000 purchase price). Since the LTV exceeds 80%, mortgage default insurance is mandatory under Canadian federal regulations. The borrower's $60,000 down payment represents only 15% of the purchase price, falling short of the required 20% minimum to avoid insurance. This scenario clearly triggers the insurance requirement that protects lenders against potential default losses.
Why the Other Options Are Wrong
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