Humber/Ontario Real Estate Course 3 Exam Practice

What does mortgage default insurance provide?

1. Permits qualified borrowers to arrange a mortgage with a minimum 10% down payment.

2. Is currently available from private insurers as well as the Canada Mortgage and Housing Corporation.

3. Offers protection to mortgagors in the event of critical illness and death.

4. Simplifies the process for first-time homebuyers.

5. Is the same as creditor life insurance.

The correct answer is: Is currently available from private insurers as well as the Canada Mortgage and Housing Corporation.

Mortgage default insurance is designed to protect lenders from the risk associated with borrowers who have a smaller down payment. When a borrower makes a down payment of less than 20% of the home's purchase price, mortgage default insurance comes into play, allowing lenders to offer them a mortgage. This type of insurance mitigates the lender's risk in the event the borrower defaults on their mortgage payments. The correct answer highlights that mortgage default insurance is indeed available from both private insurers and the Canada Mortgage and Housing Corporation (CMHC). This indicates the dual nature of the insurance market in Canada, where both public and private options exist for insuring mortgages. This coverage is particularly important for borrowers who might not have significant equity in their homes, ensuring that lenders feel secure in providing loans under those conditions. The other options describe aspects that are either unrelated or do not accurately reflect the primary purpose and structure of mortgage default insurance, such as the incorrect suggestion that it simplifies the process for first-time homebuyers or that it functions the same as creditor life insurance.