BC Real Estate Trading Services Course Mortgage Financing

Question 1

What is the maximum amortization period for an insured mortgage in Canada?

Accepted Answer

25 years

Answer

The maximum amortization period for an insured mortgage (one with mortgage default insurance, required when the down payment is less than 20%) in Canada is 25 years. Uninsured mortgages (20%+ down payment) may qualify for longer amortization periods depending on the lender, but insured mortgages are capped at 25 years.

Question 2

What is the minimum down payment required to purchase a home in Canada?

Accepted Answer

5% on the first $500,000 and 10% on the portion between $500,000 and $999,999, with 20% required for homes $1 million and above

Answer

The minimum down payment in Canada is: 5% on the first $500,000 of the purchase price, 10% on the portion between $500,000 and $999,999, and 20% for homes priced at $1 million or more. Purchases with less than 20% down require mortgage default insurance from CMHC, Sagen, or Canada Guaranty.

Question 3

What is 'mortgage default insurance' and when is it required in Canada?

Accepted Answer

Insurance that protects the lender against borrower default, required when the down payment is less than 20% of the purchase price

Answer

Mortgage default insurance (provided by CMHC, Sagen, or Canada Guaranty) protects the lender — not the borrower — if the borrower defaults on their mortgage payments. It is required by law when the down payment is less than 20%. The premium is paid by the borrower and can be added to the mortgage amount.

Question 4

What is the 'stress test' for Canadian mortgages?

Accepted Answer

A requirement that borrowers must qualify at the higher of their contract rate plus 2% or the Bank of Canada's qualifying rate, to ensure they can handle rate increases

Answer

The mortgage stress test (B-20 guideline) requires all federally regulated lenders to qualify borrowers at the higher of their actual contract rate plus 2% or the Bank of Canada's benchmark qualifying rate. This ensures borrowers can afford payments if interest rates rise. It applies to both insured and uninsured mortgages.

Question 5

What is the difference between a 'fixed rate' and 'variable rate' mortgage?

Accepted Answer

A fixed rate stays the same for the entire term regardless of market changes, while a variable rate fluctuates with the lender's prime rate, which is influenced by the Bank of Canada's policy rate

Answer

A fixed rate mortgage locks in the interest rate for the entire mortgage term (e.g., 5 years), providing payment certainty. A variable rate mortgage fluctuates with the lender's prime rate, which moves with the Bank of Canada's overnight rate. Variable rates may result in lower costs over time but carry the risk of rate increases.

BC Real Estate Practice Test

BC Real Estate Practice Test

BC Real Estate Trading Services Course Mortgage Financing