Your Client and the Marketplace Flashcards
Mortgage
A loan secured by the property, which is used as collateral
Mortgagor and Mortgagee
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
Classification of residential mortgages
Insured mortgage
Insurable mortgage
Uninsurable mortgage
Classification of mortgage depends on following factors:
Down payment
Total property value
Amortization
Down payment
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
Amortization
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
Can a borrower renew the with another lender at the end of a term?
Yes
Insured Mortgage
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
Insurable mortgage
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
Uninsurable mortgage
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
Interest rate
Annual percentage rate which is charged against a mortgage or borrowed funds to repay the lender on an outstanding loan
Fixed Interest Rate
The mortgage rate and payment made each month will stay the same for the length of the mortgage
Variable/Adjusted Interest Rate
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
Restricted Interest Rates
Can be lowest rates available
Include many restrictions
Higher penalties if broken
limited early prepayment privileges
Three mortgage insurers in Canada
Canada Mortgage Housing Corporation
Sagen
Canada Gauranty
Three mortgage insurers in Canada
Canada Mortgage Housing Corporation
Sagen
Canada Guaranty
Three mortgage insurers in Canada
Canada Mortgage Housing Corporation
Sagen
Canada Guaranty
Office of the Superintendent of Financial Institutions (OFSI)
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
Who sets the qualifying rate for mortgage borrowers in Cannada?
Department of Finance
Three types of financing
Traditional (A)
Alternative (B)
Private Lending
Does building require commercial financing if it has 5 or more exterior door?
Yes
Who handles business loans in Canada?
Business Development Bank of Canada
Loan to Value (LYV)
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
Loan to Value (LTV) calculation
Mortgage amount/purchase price
Gross Debt Servicing Ratios
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%
Two debt ratios used to determine if a borrower qualifies for a mortgage
Gross debt service ratio (GDSR)
Total debt service ratio (TDSR)
How is gross debt service ratio calculated
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
Total debt service ratio calculation
(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
PITH
Principal
Interest
Property Taxes
Heat
What principal and interest rate is used in the GDSR & TDSR calculation
The Bank of Canada’s stress test or benchmark rate or the bank contract rate + 2%
When calculating mortgage payments, what criteria must be taken into consideration
Mortgage amount
Amortization
Term length
Payment frequency
Interest rate
Floating Interest Rate
Variable (VRM) - As the rate changes, payments generally do not change
Adjustable (ARM) - As the rate changes, payments will generally change
Fixed Interest Rate
Rate is locked in for the duration of the term
What is a mortgage?
The pledging of property to a creditor/lender as security for a loan
A mortgagee is a
Individual or entity that lends mortgages
Why is it important for real estate professionals to understand how mortgage financing works?
So that you know when to refer your client to a mortgage professional
What are the fiduciary duties of a mortgage broker?
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
The three mortgage insurers in Canada are?
CMHC, Sagen, Canada Guaranty
What is a restrictive covenant?
The promise to not do a particular activity on a property
What is an amortized mortgage?
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
High Ratio Insurance
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
What is a portable mortgage?
One that allows a property owner to transfer a current mortgage to a new property for the duration of its term and without penalty
Which of the following definitions best describes “debt service ratios”
Lenders evaluate the borrowers income and expenses by using the GDSR and TDSR
What are the 5 C’s of credit?
Character
Capital
Capacity
Collateral
Credit
What makes a home uninsurable?
Over $1,000,000
An investment property
Amortization over 30 years
What is Loan to Value (LTV)
The loan amount compared to the value or purchase price of the property,
Expressed as a percentage
Four types of value in real estate
Objective value
Subjective value
Market value
investment value
Can the land title be used to assess the net equity a seller has in their home?
It is best to request updated documents from the bank regarding mortgage information.
Information on titles
Can the land title be used to assess the net equity a seller has in their home?
It is best to request updated documents from the bank regarding mortgage information.
Information on titles
Reverse mortgage
Provides the borrower with access to capital without making standard principal and interest payments
