Chapter 13 Flashcards
When converting to a percentage, what must a decimal number be multiplied by?
Select one:
a. 1000
b. 10
c. .10
d. 100
Correct Answer: 100
Rationale: When calculating percentage, the decimal number must be multiplied by 100.
Relevant section(s) of the textbook: 13.1 Loan to Value Ratio (LTV)
The correct answer is: 100
What is the loan to value of a $455,500 mortgage on a property valued at $655,500?
Correct Answer: 69.49%
Rationale: if you obtained any other answer, please check your numbers and try again. Here is the calculation:
LTV = (mortgage/value) x 100
LTV = ($455,500 / $655,500) x 100
LTV = 0.69488939740656x 100
LTV = 69.49%
Relevant section(s) of the textbook: 13.1 Loan to Value Ratio (LTV)
The correct answer is: 69.49%
This term refers to the amount of the loan, in dollars, in relation to the value of the property, in dollars, expressed as a percentage:
Select one:
a. Gross Debt Service
b. Debt Service Ratio
c. Total Debt Service
d. Loan to Value Ratio (LTV)
Correct Answer: Loan to Value Ratio (LTV)
Rationale: The Loan to Value Ratio (LTV) is the amount of the loan, in dollars, in relation to the value of the property, in dollars, expressed as a percentage that is typically rounded off to two decimal places (unless it is an exact number).
Relevant section(s) of the textbook: 13.1 Loan to Value Ratio (LTV)
The correct answer is: Loan to Value Ratio (LTV)
When calculating the LTV of a Mortgage, the “/” character represents which of the following signs?
Select one:
a. Division
b. Multiplication
c. Addition
d. Subtraction
Correct Answer: Division
Rationale: The Division sign is represented by “/” when calculating the LTV of a mortgage.
Relevant section(s) of the textbook: 13.1 Loan to Value Ratio (LTV)
The correct answer is: Division
This term refers to the ratio of debt to income expressed as a percentage:
Select one:
a. Loan to Value Ratio (LTV)
b. Gross Debt Service
c. Debt Service Ratio
d. Total Debt Service
Total Debt Service
The acronym PITH stands for:
Select one:
a. Principal, Investment, Property Taxes, and Property Holdings
b. Principal, Interest, Property Taxes, and Property Heat
c. Principal, Investment, Property Taxes, and Property Heat
d. Principal, Interest, Property Taxes, and Property Holdings
Your answer is incorrect.
Correct Answer: Principal, Interest, Property Taxes, and Property Heat
Rationale: Principal, Interest, Property Taxes, and Property Heat is what PITH stands for.
Relevant section(s) of the textbook: 13.2 GDS and TDS Ratios
The correct answer is: Principal, Interest, Property Taxes, and Property Heat
his term refers to a debt service ratio that measures the amount of shelter payments (PITH and condo maintenance fees, when applicable) and other debt payments in comparison to the amount of gross income, expressed as a percentage:
Select one:
a. Gross Debt Service Ratio
b. Debt Service Ratio
c. Industry Standard
d. Total Debt Service Ratio
Correct Answer: Total Debt Service Ratio
Rationale: The Total Debt Service Ratio is a debt service ratio that measures the amount of shelter payments (PITH and condo maintenance fees, when applicable) and other debt payments in comparison to the amount of gross income, expressed as a percentage. The formula is (PITH [Principal + Interest + Taxes + Heating] + other debts + ½ condo maintenance fee [when applicable]) / Gross Income.
Relevant section(s) of the textbook: 13.2 Gross Debt Service (GDS) and Total Debt Service (TDS) Ratios
The correct answer is: Total Debt Service Ratio
What is the purpose of the stress test?
Select one:
a. Force borrowers to borrow less money
b. Make it harder to get approved
c. Slow the housing market
d. Ensure borrowers can afford higher rates
Correct Answer: Ensure borrowers can afford higher rates
Rationale: The rationale is that the test would protect borrowers and lenders from a disastrous situation where borrowers started to default on their mortgage payments, (not make their payments), due to rising rates. This would lead, theoretically, to lenders having to sell the properties of defaulting borrowers, potentially flooding the market with properties that would effectively create more supply than demand, and ultimately causing a housing market crash.
Relevant section(s) of the textbook: 13.3 The Stress Test
The correct answer is: Ensure borrowers can afford higher rates
Your client has told you that she owes $24,500 on her credit cards. Given this information, what will her total monthly payment be on these credit cards for use in the TDS calculation?
Select one:
a. credit card payments are excluded from TDS
b. $735
c. not enough information to calculate
d. $720
Correct Answer: $735
Rationale: Since the standard is 3% of the outstanding balance, 3% x 24,500 = $735
Relevant section(s) of the textbook: 13.2 Gross Debt Service (GDS) and Total Debt Service (TDS) Ratios
The correct answer is: $735
This term refers to a debt service ratio that measures the amount of shelter (housing) payments in comparison to the amount of gross income, expressed as a percentage:
Select one:
a. Total Debt Service Ratio
b. Debt Service Ratio
c. Gross Debt Service Ratio
d. Loan to Value Ratio (LTV)
Correct Answer: Gross Debt Service Ratio
Rationale: The Gross Debt Service Ratio is a debt service ratio that measures the amount of shelter (housing) payments in comparison to the amount of gross income, expressed as a percentage. The formula is (PITH [Principal + Interest + Taxes + Heating] + ½ condo maintenance fee [when applicable]) / Gross Income.
Relevant section(s) of the textbook: 13.5 Key Terms and Definitions
The correct answer is: Gross Debt Service Ratio
Ms. House owns a condominium unit valued at $200,000 that has a mortgage with an outstanding balance of $120,000. She would like to refinance this mortgage and wishes to know how much she qualifies to borrow. Ms. House has informed you that the monthly condominium maintenance fee is $350, and her property taxes are $1,900 per year while she has a monthly income of $5,000. Further investigation shows that Ms. House has a car payment of $310 per month, credit card payments of $145 per month and a loan payment of $225 per month. Ms. House also makes weekly contributions of $50 to her RRSP, spends $185 per month for her car insurance, and has a life insurance policy that costs her $30 per month.
What is the maximum monthly mortgage payment for which Ms. House qualifies based on a TDS of 44%?
Your answer is incorrect.
Correct Answer: $1,086.67
Rationale:
Maximum Mortgage Payment (MMP) = (Income x Max TDS / 100) – (Property Taxes + ½ Condo Maintenance Fee + Heat + Other Debts)
MMP = ($5,000 x 44% / 100) – ($1,900 / 12) – (.50 x $350) – $100 - $310 - $145 - $225
MMP = ($5,000 x .44) - $158.33 – $175 – $100 - $310 – $145 – $225
MMP = $2,200 - $158.33 - $175 - $100 - $310 - $145 - $225
MMP = $1,086.67
Therefore, the maximum mortgage payment that Ms. House qualifies for is $1,086.67 per month.
$901.67 is if you included car insurance
$911.67 is if you included the full condo fee
$1,436.67 is if you excluded the full condo fee
Relevant section(s) of the textbook: 13.2 Gross Debt Service (GDS) and Total Debt Service (TDS) Ratios
The correct answer is: $1,086.67
Tedros is applying for a 2nd mortgage in the amount of $17,000. You have determined that the mortgage payment for this mortgage will be $200.88 per month. Tedros has informed you that he lives in a single-family detached home and that his 1st mortgage payment is $255.92 per week and his property taxes are $2,400 per year. Tedros earns $6,350 per month. What is Tedros’ GDS under this proposed 2nd mortgage?
Correct Answer: Gross Debt Service Ratio
Rationale:
GDS = [(PITH) / Gross Income] x 100 1st mtg pmt proposed pmt heat taxes income
GDS = [(($255.92 x 52) + ($200.88 x 12) + ($100 x 12) + $2,400) / ($6,350 x 12)] x 100
GDS = [($13,307.84 + $2,410.56 + $1,200 + $2,400) / $76,200] x 100
GDS = ($19,318.40 / $76,200) x 100 GDS = 2.5352231E-1 x 100
GDS = 0.25352231 x 100
GDS = 25.35%
Therefore, Tedros’ GDS is 25.35%.
23.78% is if you missed the heat
22.19 is if you missed the proposed mortgage payment
11.92% is if you made the weekly payment monthly
Relevant section(s) of the textbook: 13.2 Gross Debt Service (GDS) and Total Debt Service (TDS) Ratios
The correct answer is: 25.35%
