Chapter 17

Question 1

What’s an arms length transaction?

Answer 1

A transaction in which the parties involved are not inclined toward marking voluntary concessions to each other.

Question 2

Define mortgage loan default insurance

Answer 2

This insures the lender in the event where the borrower cannot make his or her loan payments.

Question 3

The percentage of lending value which determines the maximum loan available is known as the loan to value ratio

Answer 3

True

Question 4

Define credit analysis

Answer 4

An investigation of a loan applicant’s ability to repay a potential loan.

Question 5

What is a subprime mortgage?

Answer 5

A mortgage that is granted to a loan candidate who is considered high risk due to a combination of poor or limited credit rating, non verifiable income, previous consumer proposal, and or bankruptcy.

Question 6

Gross debt service ratio is equal to the percentage of ___ income that is the maximum amount a mortgagor is allowed to pay __ in principal, interest, and taxes.

Answer 6

gross
annually
property

Question 7

The period in time between the date mortgage funds are advanced and the beginning of the first payment is known as the __ __ __.

Answer 7

interest adjustment period.

Question 8

Lending value is …

Answer 8

a long term conservative estimate of the value of the property pledged as a security for a loan.

Question 9

Describe debt service

Answer 9

The making of mortgage payments by the borrower

Question 10

What is the purpose of a safety margin?

Answer 10

A safety margin ensures that the NOI of a property is sufficient to cover the required mortgage payments.