Ch 3-5: KYC, Assessing Financial Situation & Debt Management- 12%

Question 1

Formula for Holding Period Return

Question 2

Define USUFRUCT

Answer 2

Eg. Renting - Right to use and enjoyment of someone else’s property

Question 3

Define Servitude

Answer 3

Think Easement - Land also used by some service

Question 4

Define Superficies

Answer 4

• think Land lease - 1 party owns the land Another party owns the structures on it

Question 5

Define Emphyteusis

Answer 5

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

Question 6

Define Eminent Domain

Answer 6

Governments right to Take possession WHETHER YOU WANT OR NOT - pay fair compensation

Question 7

ET State EMERGENCY FUND guideline and funding strategies

Answer 7

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

Question 8

Name the 5 C’s of CREDIT

Answer 8

1) capacity- income 2) capital- down-payment $ 3) character- credit history 4) collateral- assets as security 5) credit- current debt load and credit score

Question 9

What is LTV and it’s formula

Answer 9

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.

Question 10

What does NHA stand for?

Answer 10

National Housing Act

Question 11

ET Mnemonic for 6 key financial factors to be considered when buying a home are?

Answer 11

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)

Question 12

1- What does GDS stand for? 2- what is the max GDS allowed?3- State the formula used to determine GDS

Answer 12

Gross Debt Service - max 32% allowed GDS = mortgage/rent payments + property taxes + hearing costs + 50% condo fees Divided by ———————— Gross Family Income

Question 13

1-What’s does TDS stand for? 2- What is max allowed? 3- What formula is used to determine TDS?

Answer 13

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

Question 14

State formula used in STRESS TEST

Answer 14

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%

Question 15

ET Explain: NOT IN ADVANCE

Answer 15

Interest calculated on declining principal - principal deducted 1st - interest calculated afterwards Effect: REDUCES total interest paid

Question 16

ET 1) When buying a house you should budget how much for TRANSACTION-RELATED FEES? 2) Can closing costs be borrowed?

Answer 16

1) 2-5% of purchase price 2) closing costs CANNOT be part of borrowed funds- need to be from clients own resources.

Question 17

ET Explain 55 and 55 regarding CHIP (reverse) mortgages

Answer 17

• 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

Question 18

Describe the HBP rules

Answer 18

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

Question 19

What is FTBHI? Describe qualifications and rules

Answer 19

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)

Question 20

Ch4. State mnemonic for- 6 Factors to Consider when Purchasing a Home

Answer 20

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

Question 21

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?

Answer 21

1- 5% up to 500K 2- 10% amount between 500K- 1M 3- 20%- loan portion over 1M

Question 22

Ch 4. How is CMHC Premium Fee Schedule determined when …. 1- 5% down 2- 10% down 3- 20% down 4- when refinancing

Answer 22

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

Question 23

Ch 4. List 4 steps of mortgage pre-qualification process:

Answer 23

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

Question 24

Describe key features of HBP

Answer 24

• $35 K withdrawal - pay back 15 equal payments - starting 2nd year after withdrawal

Question 25

Describe key features of FTHBI

Answer 25

1st time home buyers incentive - family income under 120K - max borrowing = 4X HH annual income - 5% min 1st mort - 5 re-sale/ 10 new re: 2nd mort

Question 26

Describe theory of EFFICIENT FRONTIER

Answer 26

More risk = more return

Question 27

Define Systematic and Non-systematic risk

Answer 27

If you have $ invested in system You have systematic risk - 20 up to 100 stocks - can be overly diversified Non-systematic risk - or SPECIFIC RISK - risk of your specific product

Question 28

Define: Pure risk

Answer 28

Loss or no loss- NO PROFIT POSSIBLE I.e.) fire insurance

Question 29

Define Speculative Risk

Answer 29

Chance of LOSS OR PROFIT

Question 30

Define Objective Risk

Answer 30

most agree it is a risk I.e.) death

Question 31

Define Subjective Risk

Answer 31

• risk 4 one, but not to another person I.e. not to an expert of the activity