PROP 1023 / CHAPTER 10

Question 1

Type of mortgage where the borrower cannot repay the outstanding balance during the term, and if the lender allows repayment, it is subject to a penalty.

Answer 1

ANSWER:
Closed Mortgage

Question 3

This mortgage that can be repaid in part or full during the term without any penalty

Answer 3

**ANSWER:

Open Mortgage**

Question 4

How is a prepayment penalty calculated?

Answer 4

A penalty of the GREATER of three months’ interest or the interest rate differential (IRD) on the amount to be prepaid.

Question 5

Explain how the IRD calculation is calculated?

Answer 5

The IRD is a calculation based on the difference in rates between the contract and the current rate (for the remaining term) applied to the time frame remaining in the loan.

Question 6

Formula for the IRD Penalty?

Answer 6

IRD = OSB x IRD x Length of Time Remaining in the Term

Question 7

Explain market value of a mortgage?

Answer 7

The market value of a mortgage is an estimate of the amount that might be received if the existing
mortgage was to be sold in an arm’s-length transaction under current conditions.

Question 8

What is a Bonus?

Answer 8

When a mortgage is purchased for more than its book value (the current outstanding balance), a bonus is involved, equal to the difference between the purchase price and the outstanding balance.

Question 9

What is a Discount?

Answer 9

A discount is involved whenever a mortgage is purchased for less than the current outstanding balance.

Question 10

Explain Book Value of a Mortgage?

Answer 10

The book value of a mortgage is the amount of principal outstanding at a particular point in time.