Mortgage insurance protects lenders when a borrower defaults by making up any shortfall needed to repay the loan if the sale of the property doesn't cover the debt. Federally regulated lenders must have mortgage insurance on loans where the buyer's down payment is less than 20 per cent of the price. In this example, what signal do potential homeowners give to indicate they are low-risk?

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A large down payment indicates to lenders that the borrower is financially stable and less likely to default, signaling they are low-risk.

Mortgage Insurance Protects Lenders When a Borrower Defaults by Making