CH 5 - Residential Mortgages Flashcards
what is does The Bank Act restrict?
loan can be no more than 80% of the property’s value
what is the use of a mortgage investment corporation (MIC)?
enables small investors to invest in a diversified pool of mortgages on residential real estate.
what is the CANADA MORTGAGE AND HOUSING CORPORATION (CMHC)
Provides insurers to lenders from borrower default.
Crown corporation wholly owned by the Canadian government
what is an acceleration clause?
explains what will happen if the borrower defaults
4 claims may give rise to a legal hypothe
- Claims of the state
- Claims of persons having taken part in the construction
- Claims of a syndicate of co-owners
- Claims under a judgment
two rights of hypothecary creditor
right to recover the claim
right to be paid ahead of other creditors
Easement
right to use another’s real estate, for such uses as road access or the placement of hydro poles.
Eminent domain
power to expropriate property for public use, with compensation to the owner
Primary real rights
grant the right of ownership and the elements issuing from it (disbursement)
Accessory real rights
allow the hypothecary creditor to follow the property— they provide a link attaching the claim directly to the property if it changes
tenant in fee simple
person who holds land absolutely and passes ownership to his or her heirs
Joint tenancy
two or more persons who, together, own the land
Tenancy in common
- involves land ownership by two or more persons. Each owner holds an individual ownership percentage
- when one owner dies, the interest of that owner’s portion of ownership transfers to his or her heirs.
three types of interests in land
- Freehold interest
- Leasehold interest
- Condominium interest
what is included in GROSS DEBT SERVICE RATIO
only shelter related costs
- Mortgage or rent payments
- Property taxes
- Heating costs
- 50% of any condominium fees
how much the GROSS DEBT SERVICE RATIO be under?
32%
How much should the total debt service ratio be under?
40%
conventional mortgages stress test using the higher of two rates:
- The five-year rate posted by the Bank of Canada
* The contract rate of the financial institution plus 2%
what does the interest rate act require for mortgages?
interest rate must be stated with semi-annual compounding and not in advance
what is Semi-annual compounding from the interest act perspective
interest portion must be compounded no more frequently than twice a year
what is the “not in advance” from the interest act perspective
principal payments are deducted first and interest is calculated afterwards, based on the remaining balance.
4 steps to mortgage qualification process
1- assess financial situation
2- calculate down payment
3- calculate monthly payments
4- calculate GDS and TDS ratio
what is the blend and extend option?
extend length of mortgage before mortgage renewal date to take advantage of low rates
choice of payments periods for mortgages
- weekly
- bi-weekly
- semi-monthly
- monthly payment periods
prepayment penalty is usually the greater of..
Three months of interest or the interest rate differential (IRD) amount
Factors when deciding to refinance
- The length of the existing mortgage term
- The differential between the old and new mortgage rate
- The interest penalties payable, if any
Three months’ interest formula
Outstanding Mortgage Balance x Existing Mortgage Interest Rate x 3 / 12
Interest rate differential Formula
Outstanding Mortgage Balance x Differential Rate x Time Remaining
portable mortgage allows..
client to transfer the existing conditions of a mortgage to another property
What is a Home Equity Line of Credit
borrowing facility linked to an existing property’s available equity
Maximum value of a a Home Equity Line of Credit
80% of the property’s value.
Reverse mortgages
allow homeowners aged 55 and over to receive secured loans in tax-free money without having to sell their house
amount available for reverse mortgages
amount can be anywhere from 10% to 55% of home value
Loan under home buyer plan must be repaid by how many years?
15
What is the CMHC First-Time Home Buyer Incentive (FTHBI)
program that allows eligible first-time home buyers to apply to finance a portion of their home purchase though a shared equity mortgage with CMHC
five Cs of credit method
- character
- capacity
- credit
- collateral
- capital
