BC Real Estate Trading Services Course Mortgage Finance Fundamentals Questions and Answers

Question 1

A couple in Burnaby, BC, has a combined gross monthly income of $10,000.
Their estimated monthly mortgage payment (P+I+T) is $3,200, and their monthly heating cost is $150.
They also have a monthly car loan payment of $550 and a student loan payment of $200.
What is their Total Debt Service (TDS) ratio?

Accepted Answer

41.0%

Answer

33.5%

Answer

38.5%

Answer

46.5%

Question 2

In Canada, under which circumstance is a lender required to ensure a mortgage is covered by mortgage loan insurance from an organization like CMHC or Sagen?

Accepted Answer

When the borrower's down payment is less than 20% of the purchase price.

Answer

When the property is a condominium.

Answer

When the amortization period is longer than 20 years.

Answer

When the purchase price of the home exceeds $1,000,000.

Question 3

A homeowner has a 5-year fixed-rate closed mortgage with a balance of $400,000 at an interest rate of 5.0%. With two years remaining, they wish to break the mortgage to take advantage of new, lower rates. The lender's current rate for a 2-year fixed term is 3.5%. What prepayment penalty will the lender most likely charge?

Accepted Answer

The greater of three months' interest or the Interest Rate Differential (IRD).

Answer

A flat administrative fee only.

Answer

The Interest Rate Differential (IRD) only.

Answer

Exactly three months' interest.

Question 4

What is the primary purpose of the mandatory mortgage stress test applied to borrowers at all federally regulated financial institutions in Canada?

Accepted Answer

To ensure the borrower can afford their mortgage payments if interest rates increase in the future.

Answer

To confirm the property's appraised value is accurate.

Answer

To calculate the amount of the property transfer tax owed.

Answer

To determine the premium for mortgage loan insurance.

Question 5

Which of the following statements most accurately distinguishes between a mortgage 'term' and an 'amortization period'?

Accepted Answer

The amortization period is the total length of time it will take to repay the entire mortgage loan, while the term is the shorter duration of the current mortgage contract.

Answer

The term is the total time required to pay off the mortgage, while the amortization is the time before the first payment is due.

Answer

The amortization period applies only to high-ratio mortgages, while the term applies to conventional mortgages.

Answer

The term and amortization period are identical for all open mortgages.

Question 6

A buyer in Nanaimo, BC, knows they will be receiving a large inheritance in about 10 months and wants to use it to pay off their mortgage in full at that time. To avoid a substantial prepayment penalty, which type of mortgage should they seek?

Accepted Answer

An open mortgage.

Answer

A 5-year closed variable-rate mortgage.

Answer

A conventional mortgage with a 25-year amortization.

Answer

A closed fixed-rate mortgage with maximum prepayment privileges.