BC Real Estate Trading Services Course Mortgage Financing 2

Question 1

What is a 'second mortgage' and what are the risks for borrowers in BC?

Accepted Answer

A mortgage that ranks behind the first mortgage in priority, typically carrying a higher interest rate and being the first to lose in a foreclosure

Answer

A second mortgage is a loan secured against a property that already has a first mortgage. It ranks behind the first mortgage in priority, meaning in a foreclosure, the first mortgage is paid first. Due to higher risk, second mortgages carry higher interest rates. Borrowers risk losing their home if they default on either mortgage.

Question 2

What is the BC 'Home Buyer Rescission Period' and how does it affect mortgage financing?

Accepted Answer

A mandatory 3-business-day cooling-off period for residential property purchases, during which the buyer can rescind the contract by paying a 0.25% rescission fee

Answer

Since January 2023, BC's Home Buyer Rescission Period provides buyers with 3 business days to rescind a residential purchase contract for any reason, subject to a rescission fee of 0.25% of the purchase price. This gives buyers time to arrange financing, conduct inspections, or reconsider without losing their full deposit.

Question 3

What is the role of CMHC (Canada Mortgage and Housing Corporation) in the Canadian mortgage market?

Accepted Answer

CMHC provides mortgage default insurance, sets housing policy, conducts housing research, and supports affordable housing development across Canada

Answer

CMHC is a federal Crown corporation that serves multiple roles: providing mortgage default insurance (the largest provider in Canada), conducting housing market research and analysis, setting housing policy, supporting affordable housing development, and administering various government housing programs. It does not lend directly to homebuyers.

Question 4

What is a 'collateral charge' mortgage versus a 'standard charge' mortgage in Canada?

Accepted Answer

A collateral charge registers the mortgage for an amount higher than the actual loan (up to the property value), allowing additional borrowing without re-registration, while a standard charge registers only the actual loan amount

Answer

A collateral charge registers the mortgage for more than the actual loan amount (often up to 125% of the property value), allowing the borrower to access additional funds later without paying for new registration. A standard charge registers only the actual loan amount. Collateral charges make it harder to switch lenders at renewal since they cannot be simply transferred — they must be discharged and re-registered.

Question 5

What are the tax implications of the First Home Savings Account (FHSA) for BC homebuyers?

Accepted Answer

Contributions are tax-deductible, growth is tax-free, and qualifying withdrawals for a first home purchase are tax-free — combining benefits of an RRSP and TFSA

Answer

The FHSA, available since April 2023, allows first-time homebuyers to save up to $8,000 per year (lifetime maximum $40,000) with tax-deductible contributions, tax-free investment growth, and tax-free withdrawals for a qualifying first home purchase. It uniquely combines the tax benefits of both an RRSP (deductible contributions) and TFSA (tax-free withdrawals).

BC Real Estate Practice Test

BC Real Estate Practice Test

BC Real Estate Trading Services Course Mortgage Financing 2