What characterizes a mortgage loan with mortgage default insurance?

A mortgage loan with mortgage default insurance is characterized by providing protection to the lender in the event that the borrower defaults on the loan. This insurance ensures that the lender is compensated for their losses if the borrower fails to meet their repayment obligations, thereby minimizing the financial risk associated with lending.

The presence of mortgage default insurance is particularly relevant when a borrower has a smaller down payment, typically less than 20% of the property’s purchase price. In such cases, lenders require this insurance to mitigate their risk. It is an essential aspect of many mortgage arrangements in Canada, facilitating access to homeownership for individuals who may otherwise face challenges in securing a mortgage.

The other options present aspects that do not accurately reflect the nature of mortgage default insurance. For instance, some loans may not require insurance, particularly when there is a substantial down payment. Coverage of borrower disability falls outside the scope of mortgage default insurance, as it is not designed for that purpose. Additionally, while interest rates can vary based on many factors, mortgage default insurance itself does not inherently result in higher rates.