Formulas

Question 1

AFTER - TAX

Answer 1

PRE-TAX RETURN = AFTER TAX / 1 - TAX RATE

Question 2

TDS 40% AND GDS 32%

Answer 2

TDS = mtg pmts + property tax + heating + 50% condo + annual debt costs / income

GDS = mortgage payments + property tax + heating + 50% condo / Income

*** Home purchase price should not exceed 2.5 x gross annual income

*** stress test; qualify for mtg greater of i) 2% above mtg rate or ii) BoC 5 yer avg benchmark rate

Question 3

EFF

Answer 3

EFF = 1 + {(i/m)^nxm}- 1

m = # of times/year interest is compounded (2 semi-annual mtg; 365 visa)
n = 1 
i = interest rate

Question 4

Mortgage Terminology

Answer 4

Power of sale: sell property w/o court order

Natures of real property:
land, real estate, real property (may be constrained by legal, political, constraints)

Limitations on property are:

• municipal taxes
• eminent domain: gov’t and public use
• public restrictions: zoning
• easement : right by one party to use another’s land

Reverse mortgage: 60 years or older; access 40% of home’s equity

Question 5

CMHC

Answer 5

• max. is $1MM value

- 5% on $500K and 10% up to $1MM

Question 6

Required Return

Answer 6

Required return pre-tax=

Mortgage interest rate/ 1- MTR

Question 7

Real Return

Answer 7

Real return = nominal return - inflation/ 1 + inflation