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QAFP > Lending > Flashcards

Lending Flashcards

1
Q

How much can a collateral mortgage be for

A

125%of closing value

  • backed by promissory note
  • not registered on provincial titles but under provinces Personal Property Securities Act
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2
Q

Are collateral loans transferable

A

No, only conventional are

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3
Q

How to calculate 3 months interest

A

Outstanding mortgage x current interest Rate x 3 / 12

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4
Q

How to calculate IRD

A

Outstanding mortgage x differential rate x time remaining

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5
Q

Are conventional and collateral loans transferable

A

Conventional yes you can transfer to another institution, collateral no

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6
Q

Penalty for breaking variable and fixed mortgages

A

Variable - three months interest

Fixed - higher of three months interest and IRD

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7
Q

Three month interest calculation

A

Outstanding mortgage x existing interest rate x 3 / 12

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8
Q

IRD Calculation

A

Outstanding mortgage x differential rate x time remaining

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9
Q

How are rates set for fixed rate loans / mortgages

A

Based on overnight lending rate

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10
Q

How are rates set for variable loan products

A

Fluctuate with prime rate and changes according to market conditions

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11
Q

Typical time frame of open mortgage

A

6 months to 5 years

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12
Q

Typical timeframe of closed mortgage

A

6 months to10 years

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13
Q

What is approval based on for variable rate mortgages

A

Clients ability to qualify for 5 year posted fixed rate by BOC

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14
Q

How are interest rates set for revolving LOC

A

Prime rate plus basis points depending on risk

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15
Q

How are rates set for unsecured LOC

A

Usually prime plus 3 - 7%

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16
Q

Minimum payment for unsecured LOC

A

3% on outstanding balance at end of 30 day period

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17
Q

The value of GIC and bonds for secured LOC

A

100%

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18
Q

Value of equity for secured LOC

A

50-75%

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19
Q

Max limit of HELOC

A

80% of property appraisal

- LOC can not exceed 65% - imposed by lenders to protect property drop in value

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20
Q

How are rates determined for secured LOCs

A

Prime lending rate plus 2% - several hundred in legal costs

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21
Q

What is the grace period on a credit card

A

Starts first day of billing cycle and ends 21 - 25 days later

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22
Q

How is interest charged on credit cards

A

Calculated on daily balance from transaction date

- cash advances payable from date of access and may have additional fees

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23
Q

What happens if you don’t pay credit cards

A
  • can cancel with no notice
  • balance due immediately
  • debit offset with funds on deposit in other accounts
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24
Q

Nominal interest rate

A

Aka annualized percentage
- rate of interest, multiplied by# of periods per year
I.e. annual interest rate of 12% is 1%interest per month compounded

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25
Q

Effective annual percentage rate

A

Rate of interest the client pays, when fees, admin costs, and compounding are included
**Bank Act - this must be stated if it differs from the annual interest rate along with an explanation

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26
Q

How do look at compounded interest on calculator

A

Compute payment
AMRT 1 ENTER
⬇️ length of term in months
⬇️ (gives balance at end of term. I.e. $0)
⬇️ (gives portion of payment that goes to principal)
⬇️ gives portion of payment that goes to interest)

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27
Q

Requirements to be able to deduct annual interest costs

A
  • must be an expectation to earn income from dividends and interest ( not capital gains)
  • not deductible if used for RRSP
  • entire investment must remain intact
  • if a portion is redeemed for personal or RSP, then proportional amount of interest is not tax deductible
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28
Q

Calculation for before tax rate of return

A

= after tax rate of return (loan rate) / (1 - marginal tax rate)

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29
Q

If borrowing to invest, factors to consider

A
  • should only borrow half eligible for

- investment time horizon of at least 10 years

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30
Q

Smith manoeuvre steps

A

1 - set up mortgage with mortgage/HELOC
2 - as mortgage gets paid, LOC increases allowing client to borrow
3 - client invests borrowed funds in portfolio to earn interest
4 - client can deduct interest on borrowed money and therefore get tax savings
5 - client uses tax savings and income earned on portfolio to pay down mortgage
6 - repeating until mortgage is fully paid, client left with portfolio and tax deductible interest loan

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31
Q

2 main ways to lower costs on loan or mortgage

A
  • increase frequency of payment

- shorten amortization

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32
Q

Calculate biweekly figures

A

Monthly payment x 12 / 26

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33
Q

How to calculate accelerated biweekly payment

A

Monthly payment / 2 - this payment is made 26 times

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34
Q

How to calculate weekly payment

A

Regular monthly payment x 12, this is divided by 52

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35
Q

How to calculate accelerated weekly payment

A

Monthly payment/ 4, 52 payments are made

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36
Q

How amortization affects interest amount

A

Shorter amortization reduces total interest paid on debt

Longer amortization increases total interest paid on debt

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37
Q

mortgage preapproval guarantee limit

A
  • usual time is 60 - 120 days

- completion build (new construction) up to 2 years by builder

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38
Q

Portable mortgage facts

A
  • issued by CMHC are usually portable
  • subject to appraisal of new property
  • if more $ needed for new - blend and extend
39
Q

What is a convertible mortgage

A

Usually after 1st year, you can convert from variable to fixed

40
Q

What are cash back mortgages

A

Provide mortgagors with cash amount (1 - 7%) of mortgage amount at closing

  • based on mortgage term, larger term has larger cash back
  • higher interest rate
41
Q

Most common interest capitalization program for mortgage

A

Skip a payment, waive a months mortgage (I.e. 4 weekly) once every 12 months- interest owing is added to principal

42
Q

What contribution to RRSP cannot be used for HBP

A

Made less than 90 days prior

43
Q

Mortgage insurance premiums

A

Under 20% down, 2.4 - 4% premium that can be paid or added to mortgage, provincial sales tax cannot be added
- premium based on LTV ratio

44
Q

Other mortgage fees

A
  • appraisal fees
  • land transfer tax
  • closing costs- legal, real estate, moving, surveyGST, home inspection

3 - 5%

45
Q

How is land transfer tax calculated

A

First $55k. 0.5%
$55k to $250k. 1.0%
$250k to $400k. 1.5%
$400k +. 2.0%

46
Q

4 property conditions to qualify for lending

A

Property type - I.e. vacation homes can require insurance
Location- I.e. near railroad, isolated rural
Construction- I.e. clapboard not acceptable
Property condition- I.e. older homes may need shorter amortization

47
Q

How much is allowed for a reverse mortgage

A

10 - 55% of appraisal
Varies with age, location and type of home
** lawyer is required

48
Q

What is a completion mortgage

A

Builder does not expect payment before completion of home

- funds are advanced in stages over year

49
Q

What is due during the construction period of a completion mortgage

A

Typically only interest

- once completed mortgage becomes conventional

50
Q

How do construction mortgages protect against over budget costs

A

10% hold back

- funds are distributed through lawyer

51
Q

Extra costs for construction mortgage 4

A

Appraisal
Legal fees
Interest charges
Loss of interest income if used for construction

52
Q

How are advances and interest treated during construction mortgage

A

Interest on advances are deducted from future advances, unless billed separately
After final advance, accrued interest collected

53
Q

Particulars about RRSP instalment loans 2

A

Usually over 1 year

First payment can be deferred to return 3 months

54
Q

Requirement for deductibility of student loan interest. 3

A
  • must be from Canada student loans, not foreign bank or personal LOC
  • cannot be combine with other
  • can carry forward 5 years
    You can apply for assistance every 6 months
    Debit forgiveness for doc and nurses going to remote areas
55
Q

Term of bridge loan

A

Typically less than 60 days and rates fluctuate

56
Q

Requirements for bridge loan

A
  • firm sale

- equity in sold home pays out loan in full including real estate and legal costs

57
Q

Costs associated with bridge loan 3

A
  • interest usually prime + percentage, variable
  • set up fee, several hundred
  • legal fee
58
Q

Details of what has to be done for bridge loan

A
  • borrowing gives copy of all firm sales
  • worksheet to show enough equity
  • letter from borrower for bank to register a mortgage against existing in case it’s sale falls through
  • LOD to lawyer showing bridge is repaid
59
Q

Are employed loans for cars or shares a taxable benefit

A

Yes the amount under the government prescribed rate

Calculated each quarter for vehicle or share purchase

Amount over prescribed x loan amount x days in quarter / 365

60
Q

Rate for employer loan for relocation

A

Prime rate at time, does not change quarterly

61
Q

Are home relocation loans from employer tax deductible

A

Yes

Deduct the lower of

  • taxable benefit of loan
  • interest of $25k at prescribed
  • total of all taxable employee loan benefits extended
62
Q

Process of leasing a vehicle

A
  • dealer sells car to leasing company , who rents it to client
  • client uses it over set term
63
Q

Net capital value NCV in lease

A

Purchase price that dealer sells car to leasing company

64
Q

Capital cost reduction in car leases. CCR

A

Down payment that reduces NCV and monthly lease payments

65
Q

Residual or buy back value for lease

A

Estimate value at end of lease, set to determine monthly payments
Differ for open end and closed end lease

66
Q

Depreciation in leasing

A

Different between NCV And residual

67
Q

Money factor in leases

A

Based on interest rate and monthly depreciation over term

  • calculated by dividing interest by factor of 24
68
Q

How long is a lease term

A

Said in months, 24 - 60 months

69
Q

Monthly lease payment

A

Monthly lease payment includes depreciation, interest charge and sales tax

70
Q

How to calculate the principle paid down during lease

A

NCV - CCR - residual

71
Q

How to calculate monthly depreciation fee for lease vehicle

A

NCV - CCR - residual / term of lease in months

72
Q

Calculate monthly finance cost of lease

A

(NCV - CCR + residual) x monthly interest rate

73
Q

Calculate monthly lease payment

A

Monthly depreciation fee + monthly finance charge

74
Q

Calculate total monthly lease payments (including tax) over the term

A

Monthly lease payment x tax x lease term

75
Q

Calculate interest paid over the term of the lease

A

Total monthly lease payments (including tax) over the term - principal paid down over term - total sales tax on monthly lease paid over term

76
Q

Calculate average monthly interest cost

A

Total interest paid / term of lease

77
Q

Name the 2 main type of leases

A

Capital and operating

78
Q

Capital lease

A

Contract that provides the lease with temporary use of an asset

  • same characteristic of owning
  • often long term
  • in the end lease owns it, but not before
79
Q

Operating lease

A

More like a rental

  • short term
  • no ownership change
  • lease payment is considered operating expense
  • lease has exclusive rights, but no ownership
  • lessor still owns and most risk
  • this is most vehicle leases
80
Q

Tax treatment of capital leases

A

Assets appear on balance sheet and depreciates

81
Q

Tax treatment of operating lease

A

Asset is off balance sheet and payment is expenses

82
Q

Best to lease a car if…

A

Only plan to drive limited number of kilometres for 3 - 4 years

83
Q

Best to borrow for a car if…

A

Using longer than 5 years and lots of kilometres

84
Q

Who regulates payday loan

A

Provinces

85
Q

Ontario recent limit to payday loan charge

A

$15 for every $100

86
Q

What is charge for payday loan if someone takes out $500 for 14 days

A

$575 = $15 x 5

Annual percentage rate = turn $75 into percentage of $500; multiply by 365 then divide by days

87
Q

Types of business loans. 4

A

Term
Operating
Commercial mortgages
Letters of credit

88
Q

What is a business term loan

A

Fixed credit facility that extends over a long period, usually more than 10 year
- helps with building supplies and increasing a new business

89
Q

What is a business operating loan

A

Short term, flexible revolving credit or LOC with preset amount

  • help bridge gap between payables and receivables
  • business makes monthly income payments
  • inventory is security
  • can be demanded back anytime
90
Q

How are operating loans recorded on business financial statements

A

Liabilities

91
Q

What is a business commercial mortgage

A

Long term (20+) loan secured by property

92
Q

What is a business letter of credit

A

Mainly for international business, reliability of buyer to pay seller

93
Q

3 keys purposes of business loans

A

Supply funds
Ready when needed
Match maturity and payment with cash flow

94
Q

6 keys components for effective business loan structure

A 
Clients needs
Credit facility 
Repayment schedule 
Price
Collateral 
Support, conditions

QAFP (12 decks)

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