Chapter 7

Question 1

What is pre-approval certificate

Answer 1

A guideline on how large a mortgage you can afford with rate guarantee

Question 2

Define the term Gross debt service (GDS) ratio

Answer 2

your monthly mortgage-related debt payments - including mortgage loan repayments, heating costs, property taxes, and half of any condominium fees-divided by your total monthly gross household income - 32% OR LESS

Question 3

Define the term Total debt service (TDS) ratio

Answer 3

your mortgage-related debt payments plus all other consumer debt payments divided by your total monthly gross household income - 40% or less

Question 4

How does the home buyers plan (HBP) help firt time home buyers reach their goal?

Answer 4

allows each home buyer to borrow up to 25k from their registered retirement savings pan (RRSP) interest-free with up to 15 years to pay back this “loan”

Question 5

What are the effects of large mortgage payments

Answer 5

The larger the payments, the less you can add to savings/investments
the lower your liquidity
the greater your overall financial risk

Question 6

List the critierias used to select a home

Answer 6

• Price
• convenient location
• maintenance
• school system
• insurance
• property tax
• Resale value
• personal preferences

Question 7

What is Multiple listing service?

Answer 7

• An info database of homes available for sale through realtors who are members of the service (online realtor service)

Question 8

T OR F? When negotiating a price most sellers are willing to accept less than their asking price

Answer 8

TRUE

Question 9

Define the term down payment?

Answer 9

Represents your equity investments in the home

Question 10

what is conventional mortgage?

Answer 10

A mortgage where the down payment is at least 20% percent of the home’s appraised value

Question 11

What is High ratio mortgage?

Answer 11

A mortgage where the down payment is less than 205 OF THE HOME’S APPRAISED VALUE

Question 12

List sources for a traditional down payment

Answer 12

• own savings
• RRSP HBP withdrawal
• Non-repayable gifts from a parent
• Money from the sale of another property

Question 13

List sources for a Non-traditional down payment

Answer 13

• Borrowed money
• Gifts
• Lender cashback incentives

Question 14

In a conventional mortgage, who bears the risk you may default on the loan?

Answer 14

Lender

Question 15

In the event of default, why does a mortgage insurer insure a high ratio mortgage

Answer 15

In order to protect the lenders investment

Question 16

What is Vendor take-back mortgage

Answer 16

• A mortgage where the lender is the seller of the property
  
  • buyer makes mortgage payments directly to seller
  • alternative to a high ratio mortgage

Question 17

Mention the closing costs of purchasing a home

Answer 17

- Home inspection fee 
Appraisal fee
 Real property report/Land survey 
Land transfer tax 
Legal fees and disbursements 
GST/HST 
Title insurance 
interest adjustment 
prepaid property tax and utility adjustments 
homeowners insurance 
loan protection life and disability insurance

Question 18

What is Amortization period?

Answer 18

the expected number of years it will take a borrower to pay off the entire mortgage loan balance (max is 25yrs or 300 months)

Question 19

what is mortgage term?

Answer 19

the period of time over which the mortgage interest rate and other terms of the mortgage contract will not change (6months and 1,2,3,4,5, and 10 years)

Question 20

what is payment frequency?

Answer 20

the frequency with which you make a mortgage payment

Question 21

What are the types of mortgage

Answer 21

Closed and open mortgage

Question 22

what is closed mortgage?

Answer 22

restricts your ability to pay off the mortgage balance during the mortgage term unless you are willing to pay a financial penalty

Question 23

Why is the closed mortgage more popular?

Answer 23

Becuase of lower interest rates

Question 24

What is open mortgage?

Answer 24

Allows you to pay off the mortgage balance at any time during the mortgage term

Question 25

What is a fixed rate mortgage

Answer 25

- A mortgage in which a fixed interest rate is specified for the term of the mortgage

Question 26

list characteristics of a fixed-rate mortgage

Answer 26

Preferred during rising interest rates Lenders are usually willing to negotiate below-posted rates Large mortgage = larger mortgage monthly payment Higher interest rate = l;larger mortgage payment Longer amortization = lower payments but more interest payable in total

Question 27

An amortization schedule discloses the monthly payments you will make based on what?

Answer 27

A specific mortgage amount A fixed interest rate An amortization period

Question 28

What is a variable rate mortgage

Answer 28

The interest charged on the loan changes in response to movements in a specific market-determined interest rate (prime rate) - could be open and closed

Question 29

__________ allows you renew your mortgage, before the end of the current mortgage term, without paying a penalty fee ('LOCK IN" DURING rising rates)

Answer 29

Convertible Mortgage

Question 30

explain the interest rate index

Answer 30

The initial mortgage rate will be adjusted to stay in line with the prime rate of interest - the rate is set at prime plus a certain number of percentage points

Question 31

What are the costs of renting a home

Answer 31

Monthly rent payment opportunity cost of security deposit renters insurance

Question 32

What are the costs of owning a home

Answer 32

- down payment - monthly mortgage payments opportunity costs of the down payment closing costs maintenance and repair costs property taxes homeowners insurance

Question 33

What is mortgage refinancing

Answer 33

When you pay off an existing mortgage with a new mortgage that has a lower interest rate you will incur closing costs again and prepayment penalties

Question 34

explain rate modification or "blend and extend"

Answer 34

fixed-rate mortgage is revised to reflect the prevailing mortgage rate - avoids costs/penalties associated with mortgage refinancing

Question 35

When does refinancing tend to be most beneficial?

Answer 35

It tends to be most beneficial when a homeowner plans to own the home for a longer period