PRRE - Unit 6: Mortgages Flashcards
____________ The gradual retirement of a debt by means of equal blended payments of both principal and interest made on a regular, periodic basis.
Amortization
_________ The length of time required to repay a mortgage using equal, periodic payments.
Amortization Period
____________ As it pertains to mortgages, it is a clause in a mortgage agreement that establishes a right or obligation for the parties to the transaction.
Covenant
___________ The market value of the property, less the outstanding balance of the mortgage and any other financial obligation registered against the property.
Equity
____________ The legal process by which the lender (mortgage) takes possession and ownership of a property due to borrower’s failure to comply with the terms and conditions of the mortgage agreement
Foreclosure
___________ A person bound by a promise to pay another’s debt or perform another’s obligation.
Guarantor
______________ The amount charged by the lender for the use of borrowed funds, calculated as a percentage of the principal
Interest Rate
______________ The end of the mortgage term when the borrower may have the options to pay off the remaining balance on the mortgage, renew it with the existing lender, or transfer it to another lender.
Maturity
_____________ The pledging of real property to a lender as security for a debt. In other words, a mortgage represents the security over property given to the lender for repayment of the loan.
Mortgage
_________________ The process by which a borrower agrees to another mortgage term with the current lender when the current term of the mortgage expires.
Mortgage Renewal
____________ The period of time for which the borrower is committed to a specific interest rate, lender, and the associated obligations under the mortgage agreement.
Mortgage Term
_________ The amount of funds originally borrowed or the portion still owing on a mortgage.
Principal
___________ The act of performing the borrower’s obligations and consequential discharge of the mortgage on the property
Redemption
___________ An individual employed by a lender or insurer who is responsible for verifying the mortgage application information and supporting documentation, making a risk assessment of the applicant(s) and the subject property, and approving or declining the mortgage based on this assessment.
Underwriter
Interest rates fluctuate based on these 2 things
- Degree of risk associated
- Term of the investment
With _________ interest, the principal remains fixed throughout the term of the loan. With _______ interest, the principal changes as the accumulated interest from prior periods is added to the principal.
- Simple (<1 year terms)
- Compound (>1 year terms)
____________ are member-based cooperatives that offer a full range of financial services.
Credit Unions
Private Lenders mostly use 3 types of funding
1) Mortgage Investment Corporations (MIC) - for higher risk borrowers
2) Syndicated Mortgage
3) Their own money
A _______________ is when two or more investors participate, directly or indirectly, as lenders in the debt obligation secured by a mortgage.
Syndicated Mortgage
__________ is the process of paying off an existing mortgage and any other legal claims against the property and establishing a new mortgage secured by the same property
Refinancing
Mortgage rates are typically _____ than those of credit cards
lower
Mortgage criteria includes (4)
1) Education level
2) Work experience
3) Length of time with current employer
4) Current residence
The higher the consumer’s credit score, the _______ the risk they represent to lenders
Lower
2 ways to determine debt ratios
1) Gross debt service ratio
2) Total debt service ratio
___________ is the percentage of their gross income needed monthly to cover housing costs
Gross Debt Service Ratio (GDS)
Affordability guidelines state that monthly housing costs should not exceed approximately _____ of a borrower’s gross monthly income
30%
(this includes mortgage, property tax, 50% of condo fees, and heating)
________ is the percentage of their total income needed monthly to cover housing costs and all other debt obligations
Total Debt Service Ration (TDS)
Affordability guidelines recommend that the TDS should not exceed ______ of the borrower’s gross monthly income
40%
_____ lending also referred to as ‘A’ lending, are loans made to borrowers who have good credit history, and good asset and income position, and the real property pledged as security is of superior quality.
Prime
_________ lending also referred to as ‘B’ lending, are loans made to borrowers who may nor meet conventional lending guidelines.
Near-prime
________ lending, also referred to as ‘C’ lending, are loans made to borrowers when they and/or the property pledged as security fail to meet conventional underwriting guidelines.
Sub-prime
A ________ mortgage is a tentative promise made by a lender to loan a borrower a certain amount of money for the purchase of real estate
Pre-approved
Property and the title is transferred to the buyer who makes the mortgage payments directly to the seller pursuant to a _____________ Agreement. The seller registers their mortgage interest on title.
Vendor Take-Back Mortgage
An ________ is used in a situation when the buyer of the property does not have sufficient funds for a down payment or when conventional financing cannot be obtained. To make the sale, the seller supplies the financing and the buyer does not become the owner of the property until the amount has been paid in full. Title to the property remains in the seller’s name until all payments and terms have been fulfilled.
Agreement for Sale (AFS)
A __________ mortgage can occur when a lender assumes an original first mortgage and provides a new loan that is greater than the original loan amount. In this instance, the borrower receives the difference between the original mortgage and the new mortgage
Wraparound
A builder who is undertaking a large project, such as a multi-housing development, may prefer to obtain a ______ mortgage to cover the entire project rather than securing a mortgage for each unit that will be built.
Blanket
__________ is a type of funding advanced in intervals to a developer or builder on behalf of a borrower as work on the construction progresses. Money is released in stages as work advances.
Builder’s Loan
This financing arrangement is for a short period of time, usually from a few months to a year, and provides financing for a developer or builder who is unable to secure long term financing during the construction period, for a buyer pending the financing of a purchase, and to others in need of short term financing. In essence, it provides the funds needed to bridge the gap until long term financing is obtained.
Interim / Bridge Financing
_________ is when two or more lenders have equitable interest in the property, so any increased value from the real estate is paid back to the lenders.
Participating Mortgage
A ___________ is when a lender posts a specific interest rate, but is willing to negotiate a different rate.
Discount mortgage
A ____________ is a loan that is designed for residential property owners 60+ (this also applies to a spouse) that allows them to convert the equity in their primary residence without selling the property or having to make payments. (up to 40% the value)
Reverse Mortgage
A ____________ is a loan secured by the lessee’s interest in the leased property.
Leasehold Mortgage
A ______________ is one that cannot be repaid without prepayment penalties during its term, except as permitted in the mortgage agreement.
Closed Mortgage
A _______________ is a loan with an interest rate that is fixed for the full term of the mortgage.
Fixed Rate Mortgage (FRM)
A ____________ is a loan with an interest rate that may change periodically during the term of the mortgage.
Variable Rate Mortgage (VRM)
The interest rate on an ___________ is usually adjusted at predetermined intervals (e.g. monthly, quarterly, semi-annually) based on an interest rate market review conducted by the lender
Adjustable Rate Mortgage (ARM)
- There are fixed rates for a portion of this mortgage
Allows the borrower, when not in default, to prepay up to a certain percentage of the outstanding principal balance (e.g. 10% or 20%) on each anniversary date of the mortgage term and an increase of the same percentage on the periodic payments.
Percentage Prepayment Option
Allows the borrower to pay twice the mortgage payment on the payment date at no cost.
Double Up Mortgage Payment Option
Consists of blending 13 months of payments over a 12-month period.
Accelerated Mortgage Payment Option
Allows the borrower to skip up to one payment per calendar year during the mortgage term.
Skip Mortgage Payment Option
Allows the borrower to switch the payment frequency without any cost.
Switch Mortgage Payment Frequency Option
Some closed mortgages may include a payout privilege which allows the borrower to pay out the mortgage before the end of the term.
Payout Privilege
When a closed mortgage is paid out prior to its maturity, the borrower is charged a payout penalty the equivalent of ____ months interest or the interest rate differential (IRD), whichever is greater
3
A mortgage expandability privilege allows a borrower to increase the principal amount on a first mortgage at the lender’s rate of interest.
Mortgage Expandability
With a _____________, the borrower receives a percentage of the mortgage in cash, usually at the time of closing, in some cases in return for a higher interest rate than the borrower would have paid without the feature.
Cash Back Privilege
A Conventional Mortgage is one where the loan does NOT exceed ______% of the appraised value / purchase price (whichever is lower).
A High-Ratio Mortgage is where the loan exceeds _____% of the value.
80%
3 Mortgage Loan Insurance Providers
1) Canada Mortgage and Housing Corp
2) Genworth
3) Canada Guaranty Mortgage Insurance Co
The mortgage agreement contains ___________, which are clauses that establish a right or an obligation agreed to by the borrower and the lender.
Covenants
Borrower Covenants (5)
1) Repay the mortgage + interest
2) To pay all taxes
3) To insure the property
4) Maintain property condition
5) Pay any charges on title
Borrower Rights (3)
1) Quiet possession of property
2) To sell or to add more mortgages
3) To discharge the mortgage (pay off)
Lender Covenants (3)
1) Discharge mortgage after payment
2) Leave borrower in quiet possession
3) Provide annual mortgage statement
Lender Rights (2)
1) To assign the mortgage
2) Right to be paid (including interest)
The priority of a mortgage is established by the …
…date the mortgage is registered against the title of the property
_________________ is when a lender agrees to maintain a position of subsequent priority on title.
Postponement of a mortgage
Foreclosure Proceedings steps (5)
1) Borrower defaults
2) Lender sends Demand Letter
3) Lender files Statement of Claim
4) Borrower responds to Statement
5) Lender files for Foreclosure relief
Lender has 3 options
a) Apply for Redemption Order
b) Apply for Order of Sale
c) Apply for Order of Foreclosure
Borrower Default may include (4)
1) Not paying mortgage
2) Not paying property tax or condo fees
3) Not insuring the property
4) Not protecting it from damage
Demand letter requests payment within ______ days
7-10
Ways that a borrower can respond to a Statement of Claim (5)
1) Agree to a Quit Claim
2) File a Demand for Notice
3) File a Statement of Defence
4) Agree to Consent Order for Foreclosure
5) Ignore Statement
