Module 8: Mortgage Products and Submitting the Application

Question 1

What are the four main types of mortgage classifications?

Answer 1

-Conventional or High Ratio Mortgages
-Closed or Open Mortgages
-Fixed or variable rate mortgages
-Special mortgage features

Question 2

Explain what a conventional vs a high ratio mortgage is?

Answer 2

Conventional mortgages is when there’s an LTV of 80% or higher where a high ratio is an LTV of less than 80%.

Question 3

Explain the difference between fully closed, partially open and open mortgages?

Answer 3

A fully closed mortgage is the most restrictive and does not allow prepayment except on the sale of the property and even then you incur a large penalty. Generally not popular in residential.
Partially open allows borrower to prepay all or part of principal under certain conditions.
Open or sometimes referred to as fully open offers the most flexibility and allows borrower to prepay all or part of the principal at any time without notice or penalty. Not offered by many lenders.

Question 4

Explain fixed vs. variable rate mortgages?

Answer 4

For fixed mortgages Interest rates stay the same for the term of the mortgage, generally popular when rates are low. Variable rates interest rates fluctuate during the term of the loan, typically with an interest rate cap. Often allows for a conversion to fixed without penalty.

Question 5

Difference between Pre-Qualified and Pre-Approved?

Answer 5

-Pre-Qualified mortgages are based solely on info provided by the borrower. Once there is an offer to purchase all the necessary documentation is presented.
-Pre-Approved mortgages a full application is processed by the lender and borrower qualifications are verified. Many mortgage lenders will no longer issue pre-approvals.

Question 6

What are some common special mortgage features lenders use to attract borrowers?

Answer 6

-Cash Back: Give borrowers % back typically used for purchasing furniture and such, however must be paid back.
-Assumable Mortgage: Allows purchaser to assume the mortgage already existing on the purchase property.
-Portable Mortgage: If borrower buying another home, allows them to transfer the current mortgage to that new property.
-Home Equity Line of Credit (HELOC): Attaches a mortgage loan to a home equity line of credit, allowing borrowers to combine of all their personal borrowing into one plan.
-Affinity Programs: Some mortgage lender’s may offer mortgages connected with incentive programs, such as frequent flyer points or other bonus incentives.

Question 7

What are blended payment loans?

Answer 7

Also known as constant payment loans. These are constant payment consisting of principal and interest. Can be classified as either fully or partially amortized mortgage.

Question 8

What are interest accruing loans?

Answer 8

No payments of interest or principal made during the life of the loan. Full amount of principal and accrued interest paid at the end of the loan.

Question 9

What are interest only loans?

Answer 9

Periodic interest payments over the time of the loan. No principal repaid over life of the loan.

Question 10

What are straight-line principal reduction loans?

Answer 10

Equal payments of principal over life of loan plus the additional interest. Key factor is that the principal amount is consistent.

Question 11

What are the main types of mortgage transactions?

Answer 11

-Purchase
-Refinance
-Equity Take Out (similar to refinance but when the property is already owned outright)
-Blend and Extend (take advantage of lower market rates and blend the existing mortgage rate and extend the term)
-Renewal
-Switch (switching to new lender)

Question 12

Will a lender who has the second mortgage on a property charge the same interest rate that would be charged on a first mortgage?

Answer 12

No the interest rate on a second mortgage would typically be higher than a first as a result of it being riskier because it has second claim in the event of default.

Question 13

What are some ‘other’ types of mortgages?

Answer 13

-Vendor Take-Back Mortgage (VTB) (basically seller financing)
-Existing Mortgage (possibility of buyer to take over an existing mortgage)
-Blanket Mortgage (single mortgage registered against two or more properties)
-Cross Collateral Mortgage (two separate mortgages registered against two separate properties but cross referenced at registration. This allows the lender recourse against both properties in the case of one mortgage defaulting.
-Collateral Mortgage (basically requesting additional collateral against the mortgage besides the home itself)
-Reverse Mortgage (When a home owner has a lot of equity and they are able to draw down payments or received as a lump sum)

Question 14

What is Canada’s largest electronically enabled originator and processor of residential mortgage-related financial transactions?

Answer 14

Filogix. This system allows brokers, lenders, credit insurance companies, credit bureaus and other industry professionals to be interconnected.

Question 15

What is the name of the cloud based management platform that enables associate mortgage brokers to build their business, run campaigns and conduct their day to day operations all from one single portal?

Answer 15

MortgageBOSS

Question 16

What is another connectivity program like Filogix, but not as large?

Answer 16

Newton Connectivity Systems

Question 17

When must a borrower get default insurance if borrowing from an institutional lender?

Answer 17

If they’re borrowing over 80% LTV. However, there are some cases when a borrower may have an LTV of less than 80% but still require default insurance.

Question 18

What’s the max LTV you can get using default insurance?

Answer 18

95%

Question 19

Does default insurance protect the borrower or the lender?

Answer 19

It protects the lender as they are guaranteed payment from the government in the event the borrower defaults.

Question 20

How is the premium paid?

Answer 20

The premium is either paid as a lump sum upfront or tacked onto the mortgage and paid over the life of the mortgage. It should be noted that that when the premium is added to the mortgage amount it is not included in the LTV calculation.

Question 21

What are the 3 default insurance firms?

Answer 21

-Sagen (Formerly Genworth Financial)
-Canada Guaranty
-CMHC

Question 22

What is mortgage creditor insurance (mortgage insurance)?

Answer 22

This insurance protects the borrower. There is different kinds but essentially can make mortgage payments on behalf of the borrower in a situation that meets outlined criteria of said insruance when the borrower is not able to make the payments.

Question 23

Different types of mortgage creditor insurance?

Answer 23

-Mortgage Creditor Life Insurance: pays outstanding mortgage balance in the event borrower dies
-Mortgage Creditor Disability Insurance: Pays mortgage in the event borrower becomes disabled
-Mortgage Creditor Job Loss Insurance: Pays mortgage monthly payments in the event borrower loses his/her job
-Mortgage Creditor Critical illness Insurance: Pays outstanding balance of the mortgage in the event that the borrower suffers certain (usually terminal) illness.

Question 24

Who typically offers creditor insurance?

Answer 24

Almost all financial institutions offer different types of mortgage creditor insurance. Also, many mortgage brokerages also offer their own creditor life and creditor disability insurance programs to borrowers.

Question 25

What is Title Insurance?

Answer 25

Title insurance insures the good and marketable title (means ownership interest in the property is accurately registered and free of claims against it) of a property as of the date of the home closing or mortgage advance. There are two types of title insurance: the mortgage lenders policy and the owners policy.

Question 26

What are the two duties of title insurers?

Answer 26

Duty to defend the title and the duty to indemnify against actual loss.

Question 27

What is Homeowners Insurance?

Answer 27

Financial protection to homeowners against disasters. A standard policy insures both the home itself and the contents of the home and the property owner and members of the family against any liability or legal responsibility for injuries or property damage caused to other people. One can legally own a home without homeowners insurance however, if the home is mortgaged most financial institutions willl require you to have insurance.