A buyer is purchasing a home for $400,000 with a 10% down payment. Which of the following is true regarding mortgage default insurance in this scenario?

Question: A buyer is purchasing a home for $400,000 with a 10% down payment. Which of the following is true regarding mortgage default insurance in this scenario?

Answer options: ✅ Mortgage default insurance is mandatory because the down payment is less than 20%.

• Mortgage default insurance is optional, as the down payment exceeds the minimum 5%.
• The lender may choose whether or not to require mortgage default insurance based on their risk assessment.
• Mortgage default insurance is not required if the borrower has an excellent credit score.

Correct answer: Mortgage default insurance is mandatory because the down payment is less than 20%.

Explanation: In Canada, mortgage default insurance is mandatory for high-ratio mortgages, where the down payment is less than 20% of the home's purchase price. This protects the lender in case of borrower default.