Lesson 9 test Flashcards
Which one of the following statements regarding the supply of mortgage funds is TRUE?
(1) A decrease in the demand for stocks (traded in the capital market) will decrease the mortgage
fund supply.
(2) Changes in government policies always have a direct and significant impact on the supply of
mortgage funds.
(3) The supply of mortgage funds is dependent on the total amount of savings available and its
competitive position.
(4) The mortgage market and the capital market are unrelated.
3
Which one of the following statements regarding interest rates in the capital market is TRUE?
(1) Usually, the longer the term of the investment, the lower the interest must be paid to the
investor.
(2) The more risk an investment poses, the higher the rate of interest charged.
(3) Due to the very low risk present with a government bond, there is no capital risk associated with it.
(4) Second or third mortgages are more secure investments than first mortgages
2
Which one of the following statements regarding interest accruing loans is TRUE?
(1) The lender is actually “borrowing” money back from the borrower.
(2) Interest accruing loans are usually written for terms of more than two years.
(3) No payments of interest or principal are made during the life of the loan.
(4) The entire original investment by the lender is rarely at risk throughout the life of the loan.
3
Which one of the following statements regarding the sources of mortgage funds is TRUE?
(1) Both federal and provincial governments provide mortgage loans.
(2) Most mortgage loans are initiated by private lenders.
(3) The life insurance industry remains the most important source of mortgage funds in Canada.
(4) Chartered banks are currently one of the smallest sources of institutional mortgage funds in
Canada.
1
Which one of the following statements regarding the outstanding principal of a loan is TRUE?
(1) The outstanding principal of an interest accruing loan will increase at an increasing rate
throughout the term of the loan.
(2) The outstanding principal of a standard constant payment loan will decrease at a constant rate.
(3) The outstanding principal of a straight-line principal reduction loan will decrease at a variable
rate.
(4) The outstanding principal of an interest only loan remains constant throughout the term of the
loan.
4
Sam is inquiring why some mortgage loan borrowers choose fixed rate mortgages over variable rate
mortgages. Which of the following is NOT an appropriate explanation?
(1) Fixed rate mortgage rates generally move in tandem with bond rates.
(2) Variable rate mortgages are considered higher risk to borrowers than fixed rate mortgages
because variable rate mortgage rates fluctuate with changes in the prime rate.
(3) Mortgage loan borrowers are often incentivized by variable rate mortgages’ increased risk and
payment variability.
(4) Fixed rate borrowers have no risk of their mortgage payment increasing during the contractual
term, making fixed rate mortgages lower risk for borrowers.
3
Which one of the following statements is TRUE?
(1) An open mortgage prevents individual borrowers from prepaying their mortgage without
penalty, except where they are permitted under the terms of their mortgage contract or by the
Interest Act.
(2) A variable rate mortgage differs from a fixed rate mortgage because the interest rate charged on
the variable rate loan may be changed during the term of the mortgage.
(3) With a vendor take-back mortgage, if the contract rate is the same as the market rate, the
perceived market value of the mortgage will always be different than the market value of the
mortgage.
(4) A key feature of a graduated payment mortgage is that the accumulated principal advances and
interest are repaid by refinancing, by sale of the property, or from proceeds of the borrower’s
estate at the end of the term or upon the death of the borrower.
2
Which one of the following mortgage repayment plans is distinguished by the ability of borrowers
switching between fixed and variable interest rate periods within a contractual term?
(1) Graduated payment mortgage
(2) Improvement mortgage
(3) Reverse annuity mortgage
(4) Combination mortgage
4
Why are mortgage rates from banks in Canada generally quoted with semi-annual compounding?
(1) In order to comply with the federal Interest Act
(2) So that compounding frequency matches payment frequency
(3) In order to comply with the Real Estate Services Act
(4) All of the above
1
Which one of the following statements is TRUE of an individual borrower’s prepayment rights, as
stated in the federal Interest Act?
(1) The borrower has the right to tender all of the outstanding debt, with an additional three
months’ interest in lieu of notice, at any time after five years from the initial date of the
mortgage.
(2) The borrower has the right to tender all of the outstanding debt at any time during the term of
the mortgage contract.
(3) The borrower may be legally bound to a mortgage contract with a clause included stating
“absolutely no prepayment whatsoever until the end of the 10-year term”.
(4) The borrower has no right of prepayment at any point during the term of a mortgage.
1
There is a new multi-family real estate project construction in the metro Vancouver area. After analyzing the different aspects of the real estate in the Vancouver area, the management of Alpha Ltd.
believes this to be a great investment opportunity. They decide to make a total investment of $2,500,000 in this project. Out of that total amount, they decide to fund part of this investment via an
interest accruing loan for $150,000, at 8% per annum, compounded semi-annually for a period of 2 years. What is the total amount due at the end of the loan term? Round your final answer to the nearest dollar.
(1) $175,479
(2) $156,000
(3) $162,240
(4) $204,073
1
The purpose of the three mortgage investment vehicles discussed in the course manual is to increase
the supply of mortgage funds and to ease access to the mortgage market for small investors. Which of
the following is NOT one of the mortgage investment vehicles discussed?
(1) Mortgage investment corporations
(2) Mortgage-backed securities
(3) Mortgage hedging options
(4) Canada mortgage bonds
3
The purpose of the three mortgage investment vehicles discussed in the course manual is to increase
the supply of mortgage funds and to ease access to the mortgage market for small investors. Which of the following is NOT one of the mortgage investment vehicles discussed?
(1) Mortgage investment corporations
(2) Mortgage-backed securities
(3) Mortgage hedging options
(4) Canada mortgage bonds
3
After receiving a scholarship for $175,000, you decide to deposit that money in an account bearing an
interest rate of 3.5% per semi-annual compounding period. You intend to let the interest accrue on the deposit and then invest the total amount in real estate. If the funds are deposited today for a three-year period, what will be the amount available at the end of this period? Round your answer to the nearest dollar.
(1) $194,198
(2) $204,026
(3) $215,120
(4) $184,349
1
Which one of the following statements regarding periodic and nominal interest rates is TRUE?
(1) A monthly periodic rate (imo) of 2% is equivalent to a nominal rate of j12 = 12%.
(2) A daily periodic rate (id) of 0.025% is equivalent to a nominal rate of j365 = 9.125%.
(3) A semi-annual periodic rate (isa) of 2.5% is equivalent to a nominal rate of j2 = 9%.
(4) A quarterly periodic rate (iq) of 3.25% is equivalent to a nominal rate of j4 = 10.5%.
2
