BC Real Estate Trading Services Course Financing & Mortgages 3 — Questions and Answers
Question 1: In BC, the 'Gross Debt Service' (GDS) ratio measures:
- Total monthly debt payments divided by gross monthly income
- Monthly housing costs (mortgage P&I, property taxes, heating) as a percentage of gross monthly income (Correct answer)
- Net income minus total debt payments
- Annual mortgage payments divided by property value
Correct answer: Monthly housing costs (mortgage P&I, property taxes, heating) as a percentage of gross monthly income
GDS ratio = (Mortgage P&I + Property Taxes + Heating + 50% strata fees) ÷ Gross Monthly Income. Canadian lenders typically require GDS to be 39% or less.
Question 2: In BC, the maximum Total Debt Service (TDS) ratio typically allowed by major lenders is:
- 28%
- 35%
- 44% (Correct answer)
- 50%
Correct answer: 44%
Canadian lenders typically require the TDS ratio (all monthly debt obligations including housing costs) to be 44% or less of gross monthly income for insured mortgages.
Question 3: In BC, an 'open mortgage' differs from a 'closed mortgage' in that:
- Open mortgages can only be obtained from credit unions
- Open mortgages can be prepaid in full at any time without penalty (Correct answer)
- Closed mortgages have lower interest rates than open mortgages
- Open mortgages require mortgage default insurance regardless of down payment
Correct answer: Open mortgages can be prepaid in full at any time without penalty
An open mortgage can be prepaid partially or in full at any time without prepayment penalty. Closed mortgages restrict prepayment but typically offer lower interest rates in exchange.
Question 4: In BC, a 'vendor take-back mortgage' (VTB) is one where:
- The buyer finances through CMHC
- The seller provides financing to the buyer as part of the purchase transaction (Correct answer)
- A private lender finances 100% of the purchase price
- The buyer assumes the seller's existing mortgage
Correct answer: The seller provides financing to the buyer as part of the purchase transaction
A vendor take-back mortgage is seller financing: the seller 'takes back' a mortgage from the buyer instead of receiving the full purchase price in cash. The buyer makes payments to the seller.
Question 5: In BC, 'mortgage portability' allows a borrower to:
- Transfer an existing mortgage to a new property, keeping the current rate and terms (Correct answer)
- Convert a variable rate mortgage to a fixed rate at any time
- Sell the mortgage to another lender
- Pay off the mortgage from any bank branch
Correct answer: Transfer an existing mortgage to a new property, keeping the current rate and terms
Mortgage portability allows a borrower to transfer their existing mortgage (rate, terms, balance) from one property to a new property when they move, avoiding prepayment penalties.
Question 6: In BC, the 'Land Title Act' requires that a mortgage be registered to:
- Be valid between the borrower and lender
- Have priority and be enforceable against third parties and subsequent registered interests (Correct answer)
- Comply with CMHC insurance requirements
- Be notarized by a BC notary public
Correct answer: Have priority and be enforceable against third parties and subsequent registered interests
While a mortgage may be contractually valid between parties without registration, registration under the Land Title Act is required for the mortgage to have priority against subsequent registered interests and be enforceable against third parties.
BC Real Estate Trading Services Course Financing & Mortgages 3
In BC, the 'Gross Debt Service' (GDS) ratio measures: