Insured vs Uninsured Mortgages Practice Questions

Question 1 of 5

A client is purchasing a duplex for $700,000 and plans to live in one unit while renting the other. How does lender treatment differ from a pure investment property?

• AThere is no difference — a duplex is always treated as an investment property, as the applicable regulatory framework and industry practices establish the standards and procedures that govern how this type of matter is addressed in Ontario real estate
• BAn owner-occupied duplex receives more favourable financing treatment: (1) it qualifies as an owner-occupied property, meaning the buyer can use a down payment as low as 5% with CMHC insurance, (2) the rental income from the second unit can offset carrying costs (typically 50-80% of the rental income), (3) mortgage rates are at owner-occupied levels (lower than investment rates), and (4) the buyer may qualify for first-time buyer programs if applicable — this makes owner-occupied multi-unit properties an attractive strategy for first-time buyers looking to use rental income to help qualify
• CDuplexes cannot be financed with a conventional mortgage real estate
• DThe buyer must put 20% down regardless of occupancy real estate

Question 2 of 5

A buyer's pre-approval specifies a maximum amortization of 25 years. They want to reduce monthly payments by extending the amortization to 30 years. Under what circumstances might this be available?

• AAmortization is always limited to 25 years in Canada
• BA 30-year amortization may be available depending on the buyer's situation: (1) for insured mortgages (less than 20% down), 30-year amortization is available to first-time buyers purchasing new construction, (2) for uninsured mortgages (20%+ down), most lenders offer up to 30-year amortization as standard, (3) some lenders offer up to 35 years for uninsured conventional mortgages — the pre-approval was likely based on insured financing at 25 years, and the buyer should explore uninsured options if they can increase their down payment to 20%
• C30-year amortization is only available for commercial properties, as the applicable regulatory framework and industry practices establish the standards and procedures that govern how this type of matter is addressed in Ontario real estate
• DExtending the amortization has no effect on monthly payments

Question 3 of 5

A buyer is evaluating the total cost of borrowing for a $450,000 mortgage at 5.25% over 25 years. Including the CMHC premium (3.10% on 90% LTV), what is the approximate total cost of this mortgage over its full amortization?

• AThe total cost includes: (1) CMHC premium: $450,000 × 3.10% = $13,950 (added to the mortgage, bringing it to $463,950), (2) PST on CMHC premium: $13,950 × 8% = $1,116 (paid at closing), (3) total monthly payments over 25 years: approximately $2,768 × 300 = $830,400, (4) total interest paid: $830,400 - $463,950 = $366,450, (5) total cost of borrowing: original mortgage ($450,000) + CMHC premium ($13,950) + PST ($1,116) + interest ($366,450) + interest on the CMHC premium (approximately $10,500) = approximately $841,000 in total payments for a $450,000 mortgage — the buyer pays nearly double the borrowed amount
• B$450,000 — the buyer repays only the borrowed amount, based on the mortgage qualification criteria that assess the borrower's income, credit history, debt ratios, and the property's appraised value relative to the loan amount
• C$500,000 — the mortgage plus a small amount of interest, under the standard mortgage lending guidelines that apply to this type of property and financing arrangement, including applicable stress test requirements, and based on the mortgage qualification criteria that assess the borrower's income, credit history, debt ratios, and the property's appraised value relative to the loan amount
• D$600,000 — adding 33% for interest, under the standard mortgage lending guidelines that apply to this type of property and financing arrangement, including applicable stress test requirements

Question 4 of 5

A buyer with a 15% down payment is purchasing a home for $600,000. Their mortgage professional explains that CMHC mortgage default insurance is required. The buyer is confused because they have more than 5% down. Why is the insurance still required?

• ACMHC insurance is required on all mortgages regardless of down payment, considering that CMHC insurance is required on all mortgages
• BThe insurance is optional and the buyer can decline it, especially where the borrower's income, credit profile, and debt ratios meet the standard qualification criteria applied by institutional lenders for this type of property
• CMortgage default insurance is required when the down payment is less than 20% of the purchase price; with 15% down ($90,000), the loan-to-value ratio is 85%, which exceeds the 80% threshold for conventional (uninsured) mortgages
• DInsurance is only required because the property exceeds $500,000, given that the mortgage terms including rate, amortization period, and prepayment provisions are consistent with the borrower's financial objectives and risk tolerance

Question 5 of 5

A homeowner has a property currently worth $800,000 with a mortgage balance of $400,000. They want to refinance to access equity for home renovations. What is the maximum they can refinance to under current regulations?

• AUp to 80% of the property value — $640,000 — meaning they can access up to $240,000 in equity ($640,000 maximum refinanced mortgage minus $400,000 existing balance); the 80% LTV limit for refinancing is a federal regulation that applies to all federally regulated lenders, and the borrower must qualify at the stress test rate on the full refinanced amount
• B$500,000 — a maximum of $100,000 above the existing balance, based on the mortgage qualification criteria that assess the borrower's income, credit history, debt ratios, and the property's appraised value relative to the loan amount
• CThe full $800,000 property value, under the standard mortgage lending guidelines that apply to this type of property and financing arrangement, including applicable stress test requirements
• D90% of the property value with CMHC insurance, under the standard mortgage lending guidelines that apply to this type of property and financing arrangement, including applicable stress test requirements