A buyer is purchasing a residential property for $950,000 with a down payment of $95,000. The mortgage agent is exploring options for mortgage default insurance. Which of the following statements accurately reflects the current regulatory requirements for mortgage default insurance in Canada for this scenario?

Question: A buyer is purchasing a residential property for $950,000 with a down payment of $95,000. The mortgage agent is exploring options for mortgage default insurance. Which of the following statements accurately reflects the current regulatory requirements for mortgage default insurance in Canada for this scenario?

Answer options:

• Given the purchase price, mortgage default insurance is mandatory, and the maximum gross debt service ratio (GDS) allowed by insurers will be 32%. ✅ Mortgage default insurance is not permitted for properties with a purchase price exceeding $1,000,000, but in this case, it is mandatory as the down payment is less than 20%.
• While mandatory due to the loan-to-value, the mortgage default insurance premium will be calculated on the full mortgage amount, and the maximum total debt service ratio (TDS) allowed will be 40%.
• Mortgage default insurance is not required for this property as the purchase price is below $1,000,000, and the borrower has sufficient income to qualify without it.

Correct answer: Mortgage default insurance is not permitted for properties with a purchase price exceeding $1,000,000, but in this case, it is mandatory as the down payment is less than 20%.

Explanation: In Canada, properties with a purchase price exceeding $1,000,000 are ineligible for mortgage default insurance. However, for properties under $1,000,000, and where the down payment is less than 20% of the purchase price, mortgage default insurance is mandatory, as is the case here.