Humber/Ontario Real Estate Course 4 Exam Practice

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What does mortgage default insurance provide?

  1. Protection for mortgagors in case of critical illness or death.

  2. It is the same as creditor life insurance.

  3. Allows borrowers to arrange a mortgage with a minimum 10% downpayment.

  4. Offered by private insurers and the Canada Mortgage and Housing Corporation.

  5. Ensures the mortgage borrower will not default on payments.

  6. Mandatory for all high-ratio mortgages.

The correct answer is: Offered by private insurers and the Canada Mortgage and Housing Corporation.

The correct choice highlights that mortgage default insurance is provided by private insurers and the Canada Mortgage and Housing Corporation (CMHC). This insurance helps lenders mitigate risks associated with borrowers who have a smaller down payment. When a borrower makes a down payment of less than 20%, they are typically required to obtain this insurance, facilitating access to mortgages for individuals who may not have significant savings. This insurance is crucial for lenders as it protects them from potential losses in case the borrower defaults on the loan, making it easier for them to approve loans to a broader range of applicants. The involvement of both private insurers and the CMHC demonstrates the collaboration between government and private sectors in providing financial security in the housing market. Regarding the other options, they do not accurately reflect the primary purpose of mortgage default insurance or misrepresent its functions. For instance, while some insurance products might offer protection in case of critical illness or death, mortgage default insurance specifically addresses the risks of default on mortgage payments, which is not the same as creditor life insurance. Additionally, while certain mortgage arrangements allow smaller down payments, it’s not exclusively linked to mortgage default insurance. Lastly, while many high-ratio mortgages require this insurance, saying it is mandatory for all high-ratio mortgages does not account for

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