At what loan-to-value (LTV) ratio is default insurance mandatory in Canada?

In Canada, default insurance is mandatory for residential mortgage loans when the loan-to-value (LTV) ratio exceeds 80%. This requirement exists to protect lenders against the risk of borrower default, particularly when the buyer has a smaller down payment. If a borrower makes a down payment of less than 20%, it indicates a higher level of risk to the lender, and as such, the requirement for default insurance helps to mitigate that risk.

An LTV ratio of 80% means that the borrower is putting down at least 20% of the home’s purchase price, thereby reducing the lender's exposure. On the other hand, if the LTV is lower than 80%, there is generally less concern regarding the borrower's ability to repay the loan, as a larger equity cushion exists. Therefore, default insurance is not required for LTV ratios at or below 80%, reinforcing the rationale for this particular threshold.