Which scenario would typically require mortgage default insurance in Canada?
Correct Answer
B) Purchase price $400,000 with $60,000 down payment
Mortgage default insurance is required when the down payment is less than 20% of the purchase price. In option B, $60,000 down on a $400,000 purchase represents 15%, which is below the 20% threshold and therefore requires insurance.
Why This Is the Correct Answer
Option B requires mortgage default insurance because the down payment represents only 15% of the purchase price ($60,000 ÷ $400,000 = 15%). Under Canadian federal regulations administered by OSFI, mortgage default insurance is mandatory when the down payment is less than 20% of the property's purchase price. This creates a loan-to-value ratio of 85%, which exceeds the 80% threshold where insurance becomes required. The insurance protects the lender against potential losses from borrower default on high-ratio mortgages.
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