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RECA Fundamentals > Your Client and the Marketplace > Flashcards

Your Client and the Marketplace Flashcards

1
Q

Mortgage

A

A loan secured by the property, which is used as collateral

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2
Q

Mortgagor and Mortgagee

A

Mortgagee: Lender or person providing funds for the purchase of a loan or mortgage security on a real estate transaction

Mortgagor: referred to as the buyer or individual who is obtaining the loan

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3
Q

Classification of residential mortgages

A

Insured mortgage

Insurable mortgage

Uninsurable mortgage

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4
Q

Classification of mortgage depends on following factors:

A

Down payment

Total property value

Amortization

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5
Q

Down payment

A

Required in any real estate transaction. Minimum amount depends on total purchase price

Can be gifted by immediate family member or obtained from applicant’s savings

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6
Q

Amortization

A

Refers to how long it will take to fully pay off a loan

Term refers to the length of time a mortgage at an agreed interest rate is in effect

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7
Q

Can a borrower renew the with another lender at the end of a term?

A

Yes

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8
Q

Insured Mortgage

A

High ratio mortgage

Mandatory if down payment is less than 20% towards the purchase of a home

Protects the lender in case of default by the borrower. Paid for by the borrower

Subject to low interest rates

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9
Q

Insurable mortgage

A

Covered by the lender instead of the borrower

Down payment must be minimum 20%

Interest rates are higher as the lender covers the loan

Amortization cannot exceed 25 years, and the total property value must be under $1,000,000

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10
Q

Uninsurable mortgage

A

Loan on any property over $1,000,000

An investment property,

Mortgage with a 30-year amortization

Mortgage considered lent as a auxiliary product

Interest rates will be higher as the risk carried by the lender is higher

Personal covenants of the borrow, such as credit issues or debt, may also make a mortgage uninsurable if they do not meet the lenders guidelines

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11
Q

Interest rate

A

Annual percentage rate which is charged against a mortgage or borrowed funds to repay the lender on an outstanding loan

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12
Q

Fixed Interest Rate

A

The mortgage rate and payment made each month will stay the same for the length of the mortgage

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13
Q

Variable/Adjusted Interest Rate

A

Scheduled payment amount stays the same, while the amount designated toward principal interest amount changes

Adjusted rate can change payment to payment depending on the bank’s going rate

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14
Q

Restricted Interest Rates

A

Can be lowest rates available

Include many restrictions

Higher penalties if broken

limited early prepayment privileges

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15
Q

Three mortgage insurers in Canada

A

Canada Mortgage Housing Corporation

Sagen

Canada Gauranty

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16
Q

Three mortgage insurers in Canada

A

Canada Mortgage Housing Corporation

Sagen

Canada Guaranty

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16
Q

Three mortgage insurers in Canada

A

Canada Mortgage Housing Corporation

Sagen

Canada Guaranty

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17
Q

Office of the Superintendent of Financial Institutions (OFSI)

A

Independent agency of the Government of Canada to contribute to the safety and soundness of the Canadian financial system

Regulates and supervises federally registered banks, trust and loan banks and private pension plans

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18
Q

Who sets the qualifying rate for mortgage borrowers in Cannada?

A

Department of Finance

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19
Q

Three types of financing

A

Traditional (A)

Alternative (B)

Private Lending

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20
Q

Does building require commercial financing if it has 5 or more exterior door?

A

Yes

21
Q

Who handles business loans in Canada?

A

Business Development Bank of Canada

22
Q

Loan to Value (LYV)

A

loan amount compared to the value or purchase price of the property

Expressed as a percentage

Determines whether mortgage will be insured, insurable, or uninsurable loan

Factors into interest rate

23
Q

Loan to Value (LTV) calculation

A

Mortgage amount/purchase price

24
Q

Gross Debt Servicing Ratios

A

Credit Score > 680
Gross Debt Service Ratio Max 39%

Total Debt Service Ratio Max 44%

Credit Score < 680
Gross Debt Service Ratio Maximum 35%

Total Debt Service Ratio Maximum 42%

25
Q

Two debt ratios used to determine if a borrower qualifies for a mortgage

A

Gross debt service ratio (GDSR)

Total debt service ratio (TDSR)

26
Q

How is gross debt service ratio calculated

A

Comparing a borrower’s monthly income to the monthly costs associated with the home that they’re purchasing

(Principal and interest payment of the mortgage + property taxes + heat + half of the condo fees if applicable)/Total monthly income

27
Q

Total debt service ratio calculation

A

(Principal and interest payment of the mortgage + property taxes + heat + half of the condo fees if applicable + monthly costs of all other debts)/Total monthly income

28
Q

PITH

A

Principal

Interest

Property Taxes

Heat

29
Q

What principal and interest rate is used in the GDSR & TDSR calculation

A

The Bank of Canada’s stress test or benchmark rate or the bank contract rate + 2%

30
Q

When calculating mortgage payments, what criteria must be taken into consideration

A

Mortgage amount

Amortization

Term length

Payment frequency

Interest rate

31
Q

Floating Interest Rate

A

Variable (VRM) - As the rate changes, payments generally do not change

Adjustable (ARM) - As the rate changes, payments will generally change

32
Q

Fixed Interest Rate

A

Rate is locked in for the duration of the term

33
Q

What is a mortgage?

A

The pledging of property to a creditor/lender as security for a loan

34
Q

A mortgagee is a

A

Individual or entity that lends mortgages

35
Q

Why is it important for real estate professionals to understand how mortgage financing works?

A

So that you know when to refer your client to a mortgage professional

36
Q

What are the fiduciary duties of a mortgage broker?

A

Treat both the client and lender with equal care and responsibility

Evaluate and list all available options for the borrower

Complete and submit any required documentation to the lender

37
Q

The three mortgage insurers in Canada are?

A

CMHC, Sagen, Canada Guaranty

38
Q

What is a restrictive covenant?

A

The promise to not do a particular activity on a property

39
Q

What is an amortized mortgage?

A

One that is gradually paid off through the use of payments.

Each successive payment has less interest and allows the owner to increase their equity (ownership) in the home

40
Q

High Ratio Insurance

A

Protects the lender, but the buyer pays

Collected as a one time payment which is then amortized over the course of the mortgage

Protects the lender from the borrower’s default on the loan

41
Q

What is a portable mortgage?

A

One that allows a property owner to transfer a current mortgage to a new property for the duration of its term and without penalty

42
Q

Which of the following definitions best describes “debt service ratios”

A

Lenders evaluate the borrowers income and expenses by using the GDSR and TDSR

43
Q

What are the 5 C’s of credit?

A

Character

Capital

Capacity

Collateral

Credit

44
Q

What makes a home uninsurable?

A

Over $1,000,000

An investment property

Amortization over 30 years

45
Q

What is Loan to Value (LTV)

A

The loan amount compared to the value or purchase price of the property,

Expressed as a percentage

46
Q

Four types of value in real estate

A

Objective value

Subjective value

Market value

investment value

47
Q

Can the land title be used to assess the net equity a seller has in their home?

A

It is best to request updated documents from the bank regarding mortgage information.

Information on titles

48
Q

Can the land title be used to assess the net equity a seller has in their home?

A

It is best to request updated documents from the bank regarding mortgage information.

Information on titles

49
Q

Reverse mortgage

A

Provides the borrower with access to capital without making standard principal and interest payments

RECA Fundamentals (27 decks)

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