Question

20.Charlene is a first-time homebuyer and has found the condo of her dreams with a purchase price of $625,000. Charlene needs to know if her savings will cover the down payment if she chooses the maximum high ratio mortgage option. Calculate the minimum down payment + the mortgage insurance premium, if CMHC insurance rate is 4%.

1. $125,000
2. $56,250
3. $61,000
4. $62,500

Answer 1

For maximum high ratio mortgage option

5% of down payment for purchase price portion up to and including $500,000

10% of down payment for purchase price portion between $500,000 and $1,000,000

Down payment = 5% of $500,000 + 10 % of ($625,000 - $500,000) = 5% of $500,000 + 10 % of $125,000

= $25,000 + $12,500 = $37,500

Mortgage value = Price of Condo - Down Payment = $625,000 - $37,500 = $587,500

CMHC insurance rate = 4%

Mortgage insurance premium = 4% of mortgage value = 4% of $587,500 = $23,500

minimum down payment + the mortgage insurance premium = $37,500 + $23,500 = $61,000

Hence Option c is the correct answer