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WME > CH 5 - Residential Mortgages > Flashcards

CH 5 - Residential Mortgages Flashcards

1
Q

what is does The Bank Act restrict?

A

loan can be no more than 80% of the property’s value

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2
Q

what is the use of a mortgage investment corporation (MIC)?

A

enables small investors to invest in a diversified pool of mortgages on residential real estate.

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3
Q

what is the CANADA MORTGAGE AND HOUSING CORPORATION (CMHC)

A

Provides insurers to lenders from borrower default.

Crown corporation wholly owned by the Canadian government

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4
Q

what is an acceleration clause?

A

explains what will happen if the borrower defaults

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5
Q

4 claims may give rise to a legal hypothe

A
  • Claims of the state
  • Claims of persons having taken part in the construction
  • Claims of a syndicate of co-owners
  • Claims under a judgment
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6
Q

two rights of hypothecary creditor

A

right to recover the claim

right to be paid ahead of other creditors

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7
Q

Easement

A

right to use another’s real estate, for such uses as road access or the placement of hydro poles.

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8
Q

Eminent domain

A

power to expropriate property for public use, with compensation to the owner

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9
Q

Primary real rights

A

grant the right of ownership and the elements issuing from it (disbursement)

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10
Q

Accessory real rights

A

allow the hypothecary creditor to follow the property— they provide a link attaching the claim directly to the property if it changes

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11
Q

tenant in fee simple

A

person who holds land absolutely and passes ownership to his or her heirs

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12
Q

Joint tenancy

A

two or more persons who, together, own the land

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13
Q

Tenancy in common

A
  • 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.
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14
Q

three types of interests in land

A
  • Freehold interest
  • Leasehold interest
  • Condominium interest
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15
Q

what is included in GROSS DEBT SERVICE RATIO

A

only shelter related costs

  • Mortgage or rent payments
  • Property taxes
  • Heating costs
  • 50% of any condominium fees
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16
Q

how much the GROSS DEBT SERVICE RATIO be under?

A

32%

17
Q

How much should the total debt service ratio be under?

A

40%

18
Q

conventional mortgages stress test using the higher of two rates:

A
  • The five-year rate posted by the Bank of Canada

* The contract rate of the financial institution plus 2%

19
Q

what does the interest rate act require for mortgages?

A

interest rate must be stated with semi-annual compounding and not in advance

20
Q

what is Semi-annual compounding from the interest act perspective

A

interest portion must be compounded no more frequently than twice a year

21
Q

what is the “not in advance” from the interest act perspective

A

principal payments are deducted first and interest is calculated afterwards, based on the remaining balance.

22
Q

4 steps to mortgage qualification process

A

1- assess financial situation
2- calculate down payment
3- calculate monthly payments
4- calculate GDS and TDS ratio

23
Q

what is the blend and extend option?

A

extend length of mortgage before mortgage renewal date to take advantage of low rates

24
Q

choice of payments periods for mortgages

A
  • weekly
  • bi-weekly
  • semi-monthly
  • monthly payment periods
25
Q

prepayment penalty is usually the greater of..

A

Three months of interest or the interest rate differential (IRD) amount

26
Q

Factors when deciding to refinance

A
  • The length of the existing mortgage term
  • The differential between the old and new mortgage rate
  • The interest penalties payable, if any
27
Q

Three months’ interest formula

A

Outstanding Mortgage Balance x Existing Mortgage Interest Rate x 3 / 12

28
Q

Interest rate differential Formula

A

Outstanding Mortgage Balance x Differential Rate x Time Remaining

29
Q

portable mortgage allows..

A

client to transfer the existing conditions of a mortgage to another property

30
Q

What is a Home Equity Line of Credit

A

borrowing facility linked to an existing property’s available equity

31
Q

Maximum value of a a Home Equity Line of Credit

A

80% of the property’s value.

32
Q

Reverse mortgages

A

allow homeowners aged 55 and over to receive secured loans in tax-free money without having to sell their house

33
Q

amount available for reverse mortgages

A

amount can be anywhere from 10% to 55% of home value

34
Q

Loan under home buyer plan must be repaid by how many years?

A

15

35
Q

What is the CMHC First-Time Home Buyer Incentive (FTHBI)

A

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

36
Q

five Cs of credit method

A
  • character
  • capacity
  • credit
  • collateral
  • capital

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