A mortgage agent is advising a client about the costs associated with their high-ratio mortgage. How is the premium for mortgage default insurance typically handled in Canada?

Question: A mortgage agent is advising a client about the costs associated with their high-ratio mortgage. How is the premium for mortgage default insurance typically handled in Canada?

Answer options:

• It is paid directly to the insurer by the borrower as a one-time upfront fee at closing. ✅ It is financed and added to the principal amount of the mortgage loan, increasing the total indebtedness.
• It is absorbed by the lender as part of their cost of doing business and not passed on to the borrower.
• It is paid monthly alongside the property taxes and mortgage payment, similar to property insurance.

Correct answer: It is financed and added to the principal amount of the mortgage loan, increasing the total indebtedness.

Explanation: In most cases, the premium for mortgage default insurance is added to the principal amount of the mortgage loan. This means the borrower finances the premium over the life of the mortgage, and it becomes part of their regular mortgage payments.