Macy has a credit score of 700. She is looking to make an offer on a condo for $475,000 in two weeks on March 12, 2021. She cannot afford a conventional mortgage and has savings of 10% to use as a down payment. For Macy to get a mortgage, she requires mortgage loan insurance to help protect her lender (Royal Bank of Canada (RBC)) against a potential mortgage default. Macy needs to meet the following requirements under Canada Mortgage and Housing Corporation (CMHC) to qualify for mortgage loan insurance:

The maximum amortization for insured mortgages is 25 years.

The minimum down payment is 5% on a home valued at $500,000 and under.

There are several other requirements to be approved for default insurance under CMHC coverage. These requirements changed on July 1, 2020 in response to the economic downturn. To be eligible for CMHC default insurance coverage after July 1st, borrowers must:

Have a Gross Debt Service ratio of less than 35%*

Have a Total Debt Service ratio of less than 42%*

Have a credit score of at least 680

*Note that prior to July 1, 2020, the GDS/TDS ratios were 39%/44% respectively if all borrowers had a credit score of 680 or higher, however if one borrower failed to meet the 680 credit score, the ratio decreased to 35/42.

Default Mortgage Insurance rates:

DOWN PAYMENT SIZE	PREMIUM CHARGED
5%	4.00%(for a traditional down payment) 4.50%(for a non-traditional down payment)
10%	3.10%
15%	2.80%
20%	2.40%
25%	1.70%
35%	0.60%

1. Macy is going to the Royal Bank of Canada (RBC) to discuss her potential mortgage with them. RBC will be calculating Macy’s Total Debt Service (TDS) ratio. Macy’s gross annual income is $129,000. The property that she is looking to purchase would result in monthly heating costs of $475, condo fees of $1,900 per year, while her annual property taxes would be $4,750. Her only debt is a car loan of $875 per month. Calculate her TDS ratio using a monthly mortgage payment of $2,500.

2. Does Macy meet the TDS ratio requirement for CMHC default insurance?

3. Calculate Macy’s mortgage default insurance using the above table Default Mortgage Insurance rates?