Chapter 11 - Mortgage Analysis In Real Estate Practice

Question 1

A closed mortgage is a mortgage which CANNOT be fully paid out before EXPIRY of its term

Question 2

Define the cost of funds advanced to the borrower.

It is the rate of interest charged on the mortgage loan after all fees and bonuses are deducted.

Question 3

In a mortgage loan, what portion constitutes a bonus

The bonus is the portion of the face value of a mortgage loan which exceeds the funds actually received by the borrower and which is intended as additional compensation for the lender.

Question 4

In a closed mortgage with a term under 5 years, there is no legal obligation on the part of the lender to allow total repayment during the duration of the term.

True

Question 5

Where an offer to purchase involves financing below market rate of interest, market value of the offer will be worth LESS than the stated offer price.

Question 6

Define a vendor take back mortgage

A VENDOR TAKE BACK MORTGAGE is one in which the vendor acts as the lender to the purchaser. The financing provided on a vendor take back mortgage is usually offered at a rate below the current market rate.

Question 7

Describe the purpose of a portable mortgage.

A portable mortgage gives the borrower flexibility to sell one home and purchase another before the current mortgage matures. The borrower may transfer the terms, conditions and interest rate from one home to another.

Question 8

The BPCPA defines Total Value Paid by the Borrower as:

Money paid by the borrower to the lender, such as regularly scheduled payments and the outstanding balance paid out at the end of the term.

Question 9

In BC, mortgage lenders and brokers must satisfy the requirements of the __________ __________ __________ _________ _________ by disclosing to the borrower the _________ _________ __________mortgage lenders and brokers must satisfy

In BC mortgage lenders must satisfy the requirements of the Business Practices and Consumer Protection Act by disclosing to the borrower the Annual Percentage Rate.

Question 10

Mortgage assumption is more common during times of rising interest rates because established low rates are attractive.

True

Question 11

Disclosure requirements from BPCPA
— to protect borrowers, the BC Business Practices and Consumer Protection Act requires the Annual Percentage Rate (APR) be disclosed to the borrower when BONUSED loan is arranged.

The APR is the contractual rate plus any non-interest financing charges (bonuses, brokerage fees, finders fees).

100xC. C= total cost of credit
———-
T x P. T = Term (years)
P= Avg O/S Principal over term

APR Example

1. TOTAL VALUE RECEIVED BY BORROWER:
   Face Value less Broker Fees
   Ex/ 500,000 Mtg, Broker Fee 6000
2. Calculate the Total Value Paid by Borrower
   Do NPEPN J2=6.5, PMT = 12
   PV 500,000 20 yrs Amort, 5 yr Term
   PMT = 3,702.51 times 60 payments = 221,150.60 plus OSB60
   OSB = 427,357.76 + 221,150.60 =649,508.36
   Less 494,000
   = 155,508.56.

APR Formula
100 times 155,508.56
Divide by 5 x 408,259

= 7.6181228

Question 12

Short Cut for APR
1. Total Cost of Credit Paid plus Bonus
= Total Principle Paid 149,508.36 plus Bonus of $6,000. = 155,508.36

2. 5 times Principle Paid. 1AMORT60

APR Formula
1. 100 times 155,508.36 = 15,550,836.

2. 5 times Avg Outstanding Principal (GIVEN). 5 x 408,259 = 2,041,295

15,550,836
—————-
2,041,295

= 7.618122