Your Client and the Marketplace

Question 1

Mortgage

Answer 1

A loan secured by the property, which is used as collateral

Question 2

Mortgagor and Mortgagee

Answer 2

Mortgagee: Lender or person providing funds for the purchase of a loan or mortgage security on a real estate transaction

Mortgagor: referred to as the buyer or individual who is obtaining the loan

Question 3

Classification of residential mortgages

Answer 3

Insured mortgage

Insurable mortgage

Uninsurable mortgage

Question 4

Classification of mortgage depends on following factors:

Answer 4

Down payment

Total property value

Amortization

Question 5

Down payment

Answer 5

Required in any real estate transaction. Minimum amount depends on total purchase price

Can be gifted by immediate family member or obtained from applicant’s savings

Question 6

Amortization

Answer 6

Refers to how long it will take to fully pay off a loan

Term refers to the length of time a mortgage at an agreed interest rate is in effect

Question 7

Can a borrower renew the with another lender at the end of a term?

Answer 7

Yes

Question 8

Insured Mortgage

Answer 8

High ratio mortgage

Mandatory if down payment is less than 20% towards the purchase of a home

Protects the lender in case of default by the borrower. Paid for by the borrower

Subject to low interest rates

Question 9

Insurable mortgage

Answer 9

Covered by the lender instead of the borrower

Down payment must be minimum 20%

Interest rates are higher as the lender covers the loan

Amortization cannot exceed 25 years, and the total property value must be under $1,000,000

Question 10

Uninsurable mortgage

Answer 10

Loan on any property over $1,000,000

An investment property,

Mortgage with a 30-year amortization

Mortgage considered lent as a auxiliary product

Interest rates will be higher as the risk carried by the lender is higher

Personal covenants of the borrow, such as credit issues or debt, may also make a mortgage uninsurable if they do not meet the lenders guidelines

Question 11

Interest rate

Answer 11

Annual percentage rate which is charged against a mortgage or borrowed funds to repay the lender on an outstanding loan

Question 12

Fixed Interest Rate

Answer 12

The mortgage rate and payment made each month will stay the same for the length of the mortgage

Question 13

Variable/Adjusted Interest Rate

Answer 13

Scheduled payment amount stays the same, while the amount designated toward principal interest amount changes

Adjusted rate can change payment to payment depending on the bank’s going rate

Question 14

Restricted Interest Rates

Answer 14

Can be lowest rates available

Include many restrictions

Higher penalties if broken

limited early prepayment privileges

Question 15

Three mortgage insurers in Canada

Answer 15

Canada Mortgage Housing Corporation

Sagen

Canada Gauranty

Question 16

Three mortgage insurers in Canada

Answer 16

Canada Mortgage Housing Corporation

Sagen

Canada Guaranty

Question 16

Three mortgage insurers in Canada

Answer 16

Canada Mortgage Housing Corporation

Sagen

Canada Guaranty

Question 17

Office of the Superintendent of Financial Institutions (OFSI)

Answer 17

Independent agency of the Government of Canada to contribute to the safety and soundness of the Canadian financial system

Regulates and supervises federally registered banks, trust and loan banks and private pension plans

Question 18

Who sets the qualifying rate for mortgage borrowers in Cannada?

Answer 18

Department of Finance

Question 19

Three types of financing

Answer 19

Traditional (A)

Alternative (B)

Private Lending

Question 20

Does building require commercial financing if it has 5 or more exterior door?

Answer 20

Yes

Question 21

Who handles business loans in Canada?

Answer 21

Business Development Bank of Canada

Question 22

Loan to Value (LYV)

Answer 22

loan amount compared to the value or purchase price of the property

Expressed as a percentage

Determines whether mortgage will be insured, insurable, or uninsurable loan

Factors into interest rate

Question 23

Loan to Value (LTV) calculation

Answer 23

Mortgage amount/purchase price

Question 24

Gross Debt Servicing Ratios

Answer 24

Credit Score > 680 Gross Debt Service Ratio Max 39% Total Debt Service Ratio Max 44% Credit Score < 680 Gross Debt Service Ratio Maximum 35% Total Debt Service Ratio Maximum 42%

Question 25

Two debt ratios used to determine if a borrower qualifies for a mortgage

Answer 25

Gross debt service ratio (GDSR) Total debt service ratio (TDSR)

Question 26

How is gross debt service ratio calculated

Answer 26

Comparing a borrower's monthly income to the monthly costs associated with the home that they're purchasing (Principal and interest payment of the mortgage + property taxes + heat + half of the condo fees if applicable)/Total monthly income

Question 27

Total debt service ratio calculation

Answer 27

(Principal and interest payment of the mortgage + property taxes + heat + half of the condo fees if applicable + monthly costs of all other debts)/Total monthly income

Question 28

PITH

Answer 28

Principal Interest Property Taxes Heat

Question 29

What principal and interest rate is used in the GDSR & TDSR calculation

Answer 29

The Bank of Canada's stress test or benchmark rate or the bank contract rate + 2%

Question 30

When calculating mortgage payments, what criteria must be taken into consideration

Answer 30

Mortgage amount Amortization Term length Payment frequency Interest rate

Question 31

Floating Interest Rate

Answer 31

Variable (VRM) - As the rate changes, payments generally do not change Adjustable (ARM) - As the rate changes, payments will generally change

Question 32

Fixed Interest Rate

Answer 32

Rate is locked in for the duration of the term

Question 33

What is a mortgage?

Answer 33

The pledging of property to a creditor/lender as security for a loan

Question 34

A mortgagee is a

Answer 34

Individual or entity that lends mortgages

Question 35

Why is it important for real estate professionals to understand how mortgage financing works?

Answer 35

So that you know when to refer your client to a mortgage professional

Question 36

What are the fiduciary duties of a mortgage broker?

Answer 36

Treat both the client and lender with equal care and responsibility Evaluate and list all available options for the borrower Complete and submit any required documentation to the lender

Question 37

The three mortgage insurers in Canada are?

Answer 37

CMHC, Sagen, Canada Guaranty

Question 38

What is a restrictive covenant?

Answer 38

The promise to not do a particular activity on a property

Question 39

What is an amortized mortgage?

Answer 39

One that is gradually paid off through the use of payments. Each successive payment has less interest and allows the owner to increase their equity (ownership) in the home

Question 40

High Ratio Insurance

Answer 40

Protects the lender, but the buyer pays Collected as a one time payment which is then amortized over the course of the mortgage Protects the lender from the borrower's default on the loan

Question 41

What is a portable mortgage?

Answer 41

One that allows a property owner to transfer a current mortgage to a new property for the duration of its term and without penalty

Question 42

Which of the following definitions best describes "debt service ratios"

Answer 42

Lenders evaluate the borrowers income and expenses by using the GDSR and TDSR

Question 43

What are the 5 C's of credit?

Answer 43

Character Capital Capacity Collateral Credit

Question 44

What makes a home uninsurable?

Answer 44

Over $1,000,000 An investment property Amortization over 30 years

Question 45

What is Loan to Value (LTV)

Answer 45

The loan amount compared to the value or purchase price of the property, Expressed as a percentage

Question 46

Four types of value in real estate

Answer 46

Objective value Subjective value Market value investment value

Question 47

Can the land title be used to assess the net equity a seller has in their home?

Answer 47

It is best to request updated documents from the bank regarding mortgage information. Information on titles

Question 48

Can the land title be used to assess the net equity a seller has in their home?

Answer 48

It is best to request updated documents from the bank regarding mortgage information. Information on titles

Question 49

Reverse mortgage

Answer 49

Provides the borrower with access to capital without making standard principal and interest payments