Chapter 3 - Mortgage Repayment Plans and Options

Question 1

What mortgage option allows a borrower to pay off his or her mortgage during the term without a penalty?

Answer 1

Fully Open

Question 2

Explain the difference between accelerating a mortgage and using the Increased Payment Option to pay the mortgage off more quickly.

Answer 2

The difference between these two options revolves around how the payment is increased

Accelerated mortgage - Payment is arranged prior to closing

Increased Payment Option allows the Borrower to increase his or her payment during the term of the mortgage - After Closing

Question 3

What is a Closed Mortgage

Answer 3

Borrower can either pay off at the end of the term or if the homeowner sells the property

Question 4

Under what circumstances would a Prepayment penalty be charged? What are the typical consequences?

Answer 4

If the borrower pays off their closed mortgage in the middle of the term. Borrower must pay either a 3 month interest penalty or the interest rate differential penalty. This depends on the lender

Question 5

Describe a scenario under which a 3 month interest penalty would be charged

Answer 5

If the lender’s current rate is more than what the Borrower is paying (i.e. 4% to 5%)

Question 6

Describe a scenario under which an interest differential penalty would be charged

Answer 6

If the lender’s current rate is lower than what the Borrower is paying (i.e., 4% previously but now 3%)

Question 7

What is a bundled mortgage? Name and describe 1 lender that currently offer bundled mortgages in Ontario

Answer 7

Mortgage + LOC

Scotiabank = STEP mortgage

Question 8

What is the most common type of Mortgage Repayment Plan in Ontario today?

Answer 8

partially amortized, blended constant payment mortgage with a fixed rate

Question 9

Explain what a “partially amortized, blended constant payment mortgage with a fixed rate “ means

Answer 9

Partially amortized = term

Blended = principal + interest

Constant = Same payment amount

Fixed Rate

Question 10

A Borrower has asked you for options regarding repaying his mortgage more quickly. Explain the options available to him and under what circumstances you would advise him to use these options (4)

Answer 10

Obtain a fully open mortgage

Accelerate the mortgage - yields higher payment

Increase the payment

Make lump sum payments