9.4 Mortgage Categories, Default Insurance & Seller Financing

Identify the financing and insurance setting

Loan-to-value (LTV) compares the base loan with the lender’s accepted value of the property. In a straightforward purchase where the lender accepts the price as the value and there is one mortgage, a 20% down payment leaves an 80% LTV. Under Bank Act section 418, the limit for a bank’s covered residential purchase, improvement and refinance lending generally counts the new loan and the outstanding balances of mortgages with equal or prior claims. Lending above 80% needs an applicable exception, such as qualifying mortgage default insurance. A loan at 80% or below may still be insured if the relevant product allows it. Distinguish this federal lending test from the Alberta definition used for the foreclosure and transferee exceptions.

As of November 2026, for the ordinary high-ratio purchase of an eligible one- or two-unit owner-occupied home, the minimum down payment is 5% on the first $500,000 plus 10% on the portion above $500,000. The purchase price and applicable lending value must satisfy the insurance limits. A purchase price of exactly $1.5 million is already outside the standard high-ratio program. CMHC Purchase generally permits up to 90% LTV for a three- or four-unit owner-occupied property, with at least 10% equity. Check the applicable program for a rental property, renovation, or different number of units.

The December 15, 2024 rules allow up to 30 years for eligible high-ratio borrowers who are first-time homebuyers or who purchase a newly constructed home. For example, a repeat buyer of a qualifying new home can meet the new-home branch. The standard maximum for a high-ratio purchase outside these branches is 25 years. Confirm program eligibility with the lender or mortgage licensee before relying on a financing timeline.

Apply the premium to the base loan

Mortgage default insurance covers eligible lender losses from borrower default. It is distinct from property insurance and creditor life or disability insurance. Canada Mortgage and Housing Corporation (CMHC), Sagen and Canada Guaranty offer insured programs. Check each provider’s current criteria and premium schedule for the loan. The CMHC Purchase schedule for standard owner-occupied loans illustrates how LTV affects the price of the insurance.

At the highest band CMHC lists 4.50% for eligible non-traditional down payments. CMHC Home Start has its own rates, including 4.20% for that LTV band with a traditional down payment. Use the right program before doing the calculation. With the standard 25-year $400,000 purchase above, the base loan is $380,000. The 4% premium is $15,200. The borrower can pay the premium separately or finance it, bringing the loan balance to $395,200 and incurring interest on the premium as part of the loan.

If the borrower defaults, the lender can make a claim for covered losses subject to the insurance terms. Alberta’s Law of Property Act and regulation determine whether statutory limits on personal recourse apply. An insured loan that meets the Alberta exception can expose the borrower to a claim even after a judicial sale and an insurance payment. The premium therefore does not buy the borrower protection from a deficiency.

Compare seller financing and assumption

With a vendor take-back mortgage, the seller accepts a secured promise of future payment for part of the price. For a $500,000 sale with $100,000 buyer cash and $350,000 first mortgage proceeds, a $50,000 seller mortgage fills the gap if the structure is approved and documented. Disclose the amount and terms to the other lender and confirm its consent where required. Have the lawyers document interest, payment and maturity, registration, rank, notices, default and any postponement. A caveat giving notice of an interest has a different function from registration of the mortgage itself. A junior seller may recover little if senior claims and costs consume the net proceeds, and may need legal advice about protecting the security when the buyer defaults.

With an assumption, the buyer takes the land subject to the existing mortgage and may assume payment obligations under the instruments and the applicable legislation. Check whether the lender permits the assumption, the buyer qualifies, the seller obtains an express written release and the exact balance, rate, maturity and other terms. A buyer’s promise to pay and lender approval of the buyer do not by themselves establish a seller release. Conversely, a payment covenant does not automatically create an enforceable personal claim. The Alberta statutory protections and exceptions govern. A lower existing rate is one factor. Compare the remaining term, later renewal, prepayment charges, approval timeline and any funds needed above the assumed balance.

Compare rate and prepayment terms independently

An open mortgage permits early repayment without a prepayment penalty under its terms. A closed mortgage generally restricts early payments but may allow annual lump sums or increased regular payments. Check the contract for dates, limits and charges. Fixed and variable describe the rate, a separate choice. A fixed rate lasts for the term. A variable rate can move with the lender’s reference rate, often prime. With adjustable payments, the payment can change with the rate. With a variable rate and fixed payments, rising rates shift more of the payment to interest. At the trigger rate, the payment only covers current interest. Above it, unpaid interest can increase the balance if the loan permits. A trigger point is a separate contractual threshold for action. Review the contract and ask the lender what changes, when and at what cost. Compare these terms with the buyer’s likely move, renewal and cash-flow needs.

Explain why mortgage quotes change

A lender prices a mortgage using funding costs, competition, borrower and property risk and the particular product. The Bank of Canada’s policy rate influences short-term funding costs and usually affects lenders’ prime rates. A variable mortgage linked to prime follows the pricing formula in its contract. New fixed-rate offers can move with bond yields and longer-term funding costs even when prime stays unchanged. An existing fixed mortgage retains its agreed rate until its term ends, subject to the contract. A fixed-rate borrower can face a new rate at renewal.

If yields rise while prime stays steady, ask the lender whether its fixed quote or rate hold has changed and when the hold expires. Check the payment and qualification at the rate actually available for the property and borrower. The client can then assess whether a financing condition and its deadline still give enough time for approval.

Bank of Canada on mortgage pricing · Financial Consumer Agency of Canada on mortgage interest

Distinguish a referral from dealing in mortgages

The Alberta Real Estate Act includes soliciting mortgage borrowers or lenders, negotiating mortgages, dealing in existing mortgages and administering mortgages within the regulated activity. A real estate licence alone does not authorize acting as a mortgage broker. A simple introduction to a mortgage licensee who deals with multiple lenders can be a referral, while steering a buyer to a particular lender for compensation or collecting and delivering a loan application can cross into solicitation or other regulated work. Check the actual activity, the source of any fee, the broker’s guidance, written benefit disclosures and the buyer’s permission before sharing personal details.

An affiliated mortgage brokerage has a connection to a lender, such as being an affiliate or subsidiary. An unaffiliated brokerage has no such connection to that lender. Lender affiliation and lender range are separate facts. For example, a brokerage can be unaffiliated yet have a limited lender panel. RECA’s intermediary guidance calls for disclosure of the brokerage’s relationship to the lender, whether it uses one lender or several, compensation and interests that could affect the referral or application. Ask what relationship the brokerage offers and which lenders it can access. A lender’s own mortgage specialist offers that lender’s products under the applicable lender exemption rather than acting as the consumer’s independent broker.