Ch 3-5: KYC, Assessing Financial Situation & Debt Management- 12% Flashcards
(4) KPMG- Ch.1
Formula for Holding Period Return
Define USUFRUCT
Eg. Renting - Right to use and enjoyment of someone else’s property
Define Servitude
Think Easement - Land also used by some service
Define Superficies
- think Land lease - 1 party owns the land Another party owns the structures on it
Define Emphyteusis
Think Business lease - Right to use land IF upgraded in a tangible way - all become properly of landlord at end of lease - like regular lease but with emphasis on IMPROVING PROPERTY
Define Eminent Domain
Governments right to Take possession WHETHER YOU WANT OR NOT - pay fair compensation
ET State EMERGENCY FUND guideline and funding strategies
3-6 months LIVING expenses SOURCES: Investment products: - savings accounts - cashable GICs - $ market MF Line of Credit Home Equity Loan Possible but not ideal (negative tax consequences likely) - borrow against life insurance - withdrawal from RRSP
Name the 5 C’s of CREDIT
1) capacity- income 2) capital- down-payment $ 3) character- credit history 4) collateral- assets as security 5) credit- current debt load and credit score
What is LTV and it’s formula
LOAN-to-VALUE ratio Formula: Loan amount/ Home value = LTV Note: LTV above 95% visit from appraiser Under 95% can use AVM (automated valuation management tool) IF in AVM’s scope I.e. no unusual characteristics.
What does NHA stand for?
National Housing Act
ET Mnemonic for 6 key financial factors to be considered when buying a home are?
Interest Mortgage Test Lowers Financial Difficulties Interest rate Mortgage Stress Test Term and Amortization Loan-to-Value ratio (LTV) Fees associated with purchase Debt service ratios (GDS and TDS)
1- What does GDS stand for? 2- what is the max GDS allowed?3- State the formula used to determine GDS
Gross Debt Service - max 32% allowed GDS = mortgage/rent payments + property taxes + hearing costs + 50% condo fees Divided by ———————— Gross Family Income
1-What’s does TDS stand for? 2- What is max allowed? 3- What formula is used to determine TDS?
Total Debt Service ratio Max allowed - 40% TDS = mortgage/rent payments + property taxes + hearing costs + 50% condo fees + CONSUMER CREDIT PAYMENTS Divided by ———————— Gross Family Income
State formula used in STRESS TEST
High-ratio mortgages (+80%) - BofC 5yr rate Conventional mortgages (80% or less) Must qualify using HIGHER of 1-B of C 5yr rate, or 2- lender rate + 2%
ET Explain: NOT IN ADVANCE
Interest calculated on declining principal - principal deducted 1st - interest calculated afterwards Effect: REDUCES total interest paid
ET 1) When buying a house you should budget how much for TRANSACTION-RELATED FEES? 2) Can closing costs be borrowed?
1) 2-5% of purchase price 2) closing costs CANNOT be part of borrowed funds- need to be from clients own resources.
ET Explain 55 and 55 regarding CHIP (reverse) mortgages
- 55yrs old and up to 55% of estimated home value - any existing debt against home paid off in full- client gets rest - mortgage increases by accrued interest BUT no payment until death - also known as home equity conversion mortgages - income not included in income tested programs such as GIS
Describe the HBP rules
35K per person Repaid in 15 yrs Starting 2nd calendar yr from withdrawal - took 2020- repay starts 2022 by RRSP contribution deadline Don’t pay added to income and taxed Turn 71- pay off or take as income
What is FTBHI? Describe qualifications and rules
1st TIME HOME BUYER INCENTIVE QUALIFY: - HH income under 120K - mortgage and FTHBI less than 4Xs annual HH income - have 5% down payment REPAY: - up to 5% resale, 10% new in 25yrs or when sold - no payments till then (lent interest free)
Ch4. State mnemonic for- 6 Factors to Consider when Purchasing a Home
INTEREST- interest rate MORTGAGE- stress test TESTS- term and amortization LOWER- LTV- loan/ home value ratio FINANCIAL- fees associated with mortgage (2-5% purchase price) DIFFICULTIES- debt service ratio’s (GDS /TDS) calculated using: - High-ratio mortgages - BoC 5 year rate - Conventional: higher of …lenders rate + 2% OR Can 5yr
Ch 4. What are the CMHC min down-payments for:
1- up to 500K mortgage?
2- portion of mortgage between 500K - 1M?
3- mortgage portion over 1M?
1- 5% up to 500K 2- 10% amount between 500K- 1M 3- 20%- loan portion over 1M
Ch 4. How is CMHC Premium Fee Schedule determined when …. 1- 5% down 2- 10% down 3- 20% down 4- when refinancing
1- 5% down = 4% x mortgage loan 2- 10% down - 3- 20% down = 2.4% x mortgage loan 4- new premium based on LESSER of: - premium of increased mortgage amount - premium of total mortgage amount
Ch 4. List 4 steps of mortgage pre-qualification process:
Calculate: 1- Net Worth statement - ID all debts 2- down-payment - cash down/ purchase = LTV ratio - ? Does CMHC need to be used? 3- monthly mortgage payments - translate nominal rate to effective 4- GDS (32%) and TDS (40%) ratios
Describe key features of HBP
- $35 K withdrawal - pay back 15 equal payments - starting 2nd year after withdrawal
