PROP 1023 / CHAPTER 10 Flashcards Preview

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Flashcards in PROP 1023 / CHAPTER 10 Deck (10):
1

Type of mortgage where the borrower cannot repay the outstanding balance during the term, and if the lender allows repayment, it is subject to a penalty. 

ANSWER:
Closed Mortgage

2

3

This mortgage that can be repaid in part or full during the term without any penalty

ANSWER:

Open Mortgage

4

How is a prepayment penalty calculated?

A penalty of the GREATER of three months' interest or the interest rate differential (IRD) on the amount to be prepaid.

5

Explain how the IRD calculation is calculated?

The IRD is a calculation based on the difference in rates between the contract and the current rate (for the remaining term) applied to the time frame remaining in the loan.

6

Formula for the IRD Penalty?

IRD = OSB x IRD x Length of Time Remaining in the Term

7

Explain market value of a mortgage?

The market value of a mortgage is an estimate of the amount that might be received if the existing
mortgage was to be sold in an arm's-length transaction under current conditions. 

8

What is a Bonus?

When a mortgage is purchased for more than its book value (the current outstanding balance), a bonus is involved, equal to the difference between the purchase price and the outstanding balance. 

9

What is a Discount?

A discount is involved whenever a mortgage is purchased for less than the current outstanding balance.

10

Explain Book Value of a Mortgage?

The book value of a mortgage is the amount of principal outstanding at a particular point in time.