PROP 1023 / CHAPTER 10 Flashcards Preview

PROP 1023 > PROP 1023 / CHAPTER 10 > Flashcards

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

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. 

Closed Mortgage



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


Open Mortgage


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.


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.


Formula for the IRD Penalty?

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


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. 


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. 


What is a Discount?

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


Explain Book Value of a Mortgage?

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