Chapter 13

Question 1

What is home mortgage?

Answer 1

Security for a loan
It is a transfer of an interest in property to a creditor as a security for repayment of a debt with right of redemption by the borrower upon repayment of debt.

Question 2

What is a Mortgagee?

Answer 2

Mortgagee is the lender who receives title to the property until debt is paid. Equity of redemption can be used as security for other loans.

Question 3

Conventional Mortgage?

Answer 3

A conventional mortgage is a first mortgage granted by an instituional lender where the amount of the loan does not exceed 75% of the the appraised lending value. >75% must be insured, paid by borrower to protect lender from default.

Question 4

The elements of Mortgage mathematics

Answer 4

Principal
Term
Rate of Interest
Period of Payment
Amortization Period

Question 5

How much house can you afford?

Answer 5

GDS (30%)*Annual Income
=/12 - (Property taxes/12)
=Max monthly payments
Calcualte PV of Mortgage + Down Payment = 
Max value of house you can buy.H

Question 6

High Ratio mortgage

Answer 6

High Ratio mortgage: higher interest rates, covered with mortgage insurance, mortgagor pays the insurance premium.

Question 7

Vendor-take-back Mortgage

Answer 7

Vendor provides the financing. Mortgage usually short and below market rate. Vendor can sell mortgage for cash or hold as investment.

Question 8

What are the returns from home ownership?

Answer 8

Capital gains from appreciations - tax exempt.
Imputed rental income is tax exempt.
Non-financial returns like pride of ownership, ability to modify, decorating, etc.

Question 9

Risks in home ownership

Answer 9

Historically periods of little to no appreciation, can decline - Toronto, Vancouver in the 70s and 80s.

Question 10

Home Market Value Definition

Answer 10

Defined as the highest price that a buyer will pay in the open market assuming: reasonable time, no peculiar circumstances like loss of employment, divorce, etc.

Question 11

What is the most important factor in home valuation?

Answer 11

Location

Question 12

What are the other factors in home valuation?

Answer 12

Lot size
building size
Type of constructions
bathrooms
family room
kitchen
Deck
Fireplace
Corner lots
Driveway
Yard

Question 13

Valuation Approaches for Housing

Answer 13

Direct Market Comparison

Cost Approach

Question 14

Direct Market Comparison Approach

Answer 14

Locate properties similar to the subject property

Adjust based on the differences between the two.

Question 15

Reproduction Cost Approach

Answer 15

Reproduction of the property using highly similar material at current costs.

Question 16

Replacement Cost

Answer 16

Replacement of the property with a structure of the same size and utility using current technology, materials and equipment.

Question 17

Cost approach of Valuation

Answer 17

Estimate the value of the land.
Add the estimated cost of house in new condition.
Subtract estimated accrued depreciation from all causes. (Expenses)

Question 18

Rent Vs. Buy Decision, Considerations, Calculations

Answer 18

Estimate gross ownership costs: Mortgage payments, property taxes, insurance, maintenance. Net ownership costs = Gross ownership - rent.
Compare the future value from ownership vs. FV from rental.
Ownership: estimated prop value - mortgage balance
Rental: FV of investing DP, closing costs etc.

Question 19

Home Ownership Considerations

Answer 19

Assessment of structural damage or flaws
Warranties
Legal Issues: Property lines, access to property, mutual driveways, fees.