Chapter 16 : Mortgage Yield and Cost Analysis Flashcards
Mortgage Yield and Cost Analysis
Where an offer to purchase involves financing below the market rate of interest, the market value of the offer will be worth ______ than the stated offer price.
Where an offer to purchase involves financing below the market rate of interest, the market value of the offer will be worth less than the stated offer price.
TRUE or FALSE? Mortgage assumption is more common during times of rising interest rates because established low rates are attractive.
TRUE or FALSE? Mortgage assumption is more common during times of rising interest rates because established low rates are attractive.
Answer:
TRUE
Define a vendor take-back mortgage.
Answer:
A vendor take-back mortgage is one in which the vendor acts as a lender to the purchaser. The financing provided on a vendor take-back mortgage is usually offered at a rate below the current market rate.
Define prepayment penalties.
Define prepayment penalties.
Answer:
In a closed mortgage, a lender who allows the borrower to prepay part of the outstanding balance will charge a prepayment penalty. The penalty will be the greater of three months’ interest or the interest rate differential on the amount to be prepaid.
TRUE or FALSE? 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 or FALSE? 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.
Answer:
TRUE
A closed mortgage is a mortgage which _______ be fully paid out before _______ of its term.
A closed mortgage is a mortgage which cannot be fully paid out before expiry of its term.
In a mortgage loan, what portion constitutes a bonus?
Answer:
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.
Define the cost of funds advanced to the borrower.
Answer:
The cost of funds advanced to the borrower is the rate of interest charged on the mortgage loan amount after all fees and bonuses are deducted.
Describe the purpose of a portable mortgage.
Answer:
A portable mortgage gives the borrower the 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.
In BC, mortgage lenders and brokers must satisfy the requirements of the _______ _______ ____ ________ _______ _____ by disclosing to the borrower the _______ ________ ______.
Answer:
In BC, mortgage lenders and brokers must satisfy the requirements of the Business Practices and Consumer Protection Act (BPCPA) by disclosing to the borrower the Annual Percentage Rate (APR).
