BC Real Estate Trading Services Course Financing & Mortgages 4 — Questions and Answers
Question 1: In BC, a 'Home Equity Line of Credit' (HELOC) is:
- A fixed-term loan based on property equity, fully drawn at closing
- A revolving credit facility secured against home equity that can be drawn and repaid flexibly (Correct answer)
- A government program for first-time buyers in BC
- A second mortgage with a fixed repayment schedule
Correct answer: A revolving credit facility secured against home equity that can be drawn and repaid flexibly
A HELOC is a revolving credit facility secured by a registered charge against the property. Borrowers can draw, repay, and redraw up to the approved limit, paying interest only on amounts drawn.
Question 2: In BC, 'mortgage assumption' occurs when:
- A new buyer takes over the seller's existing mortgage with lender approval (Correct answer)
- The lender assumes responsibility for the mortgage if the borrower defaults
- CMHC assumes the mortgage upon insurance payout
- The buyer assumes the seller's property taxes
Correct answer: A new buyer takes over the seller's existing mortgage with lender approval
Mortgage assumption occurs when the buyer takes over the seller's existing mortgage, continuing the same terms. The lender must approve the assumption. The seller may remain liable unless the lender provides a release.
Question 3: In BC, a 'collateral mortgage' is different from a conventional mortgage because:
- It is used only for strata units
- It is registered for an amount higher than the loan advanced, using a promissory note, and is not easily transferred to another lender (Correct answer)
- It has no registered amount
- It is used only for commercial properties
Correct answer: It is registered for an amount higher than the loan advanced, using a promissory note, and is not easily transferred to another lender
A collateral mortgage registers a charge (often 100-125% of value) backed by a promissory note rather than the mortgage contract itself. It cannot be transferred to another lender — the borrower must discharge and re-register, incurring costs.
Question 4: In BC, the minimum down payment for a purchase price between $500,000 and $999,999 is:
- 5% of the full purchase price
- 10% of the full purchase price
- 5% of the first $500,000 plus 10% of the portion above $500,000 (Correct answer)
- 20% of the full purchase price
Correct answer: 5% of the first $500,000 plus 10% of the portion above $500,000
Canada's rules require: 5% on the first $500,000 and 10% on the portion between $500,000 and $999,999. For $1M+, 20% is required. This tiered structure means the effective minimum down payment increases with price.
Question 5: In BC, which factor would MOST likely lead a lender to decline a mortgage application?
- The applicant has an excellent 780 credit score
- The applicant's TDS ratio is 52%, well above the maximum (Correct answer)
- The property passed a home inspection
- The applicant has been employed full-time for 3 years
Correct answer: The applicant's TDS ratio is 52%, well above the maximum
A TDS ratio of 52% exceeds the maximum allowable threshold (typically 44%). Lenders decline mortgages where total debt servicing is too high relative to income, as it suggests the borrower cannot afford all obligations.
Question 6: In BC, 'interest adjustment date' (IAD) on a new mortgage refers to:
- The date the lender changes the interest rate
- The date from which interest is calculated, typically the first of the month after funds advance (Correct answer)
- The annual date on which the lender reviews the interest rate
- The date the CMHC premium is added to the mortgage
Correct answer: The date from which interest is calculated, typically the first of the month after funds advance
The IAD is the date from which regular mortgage payments begin. If funds advance mid-month, the borrower pays interest-only from the advance date to the IAD, then regular P&I payments begin.
BC Real Estate Trading Services Course Financing & Mortgages 4
In BC, a 'Home Equity Line of Credit' (HELOC) is: