Mortgage Finance Fundamentals Flashcards
6 cards from real BC Real Estate Trading Services Course practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Mortgage Finance Fundamentals flashcards as text
Under current OSFI (Office of the Superintendent of Financial Institutions) B-20 guidelines, what is the minimum qualifying rate for an insured mortgage stress test in Canada?
Answer: The greater of the contract rate plus 2%, or the Bank of Canada 5-year benchmark rate (currently 5.25%)
The stress test requires borrowers to qualify at the greater of: their actual contract rate plus 200 basis points (2%), or the Bank of Canada qualifying rate (5.25% as a floor). This ensures borrowers can handle rate increases.
What is the maximum amortization period available for a CMHC-insured (high-ratio) residential mortgage in Canada?
Answer: 30 years
As of August 2024, CMHC increased the maximum amortization for insured mortgages to 30 years for first-time buyers purchasing newly built homes, while the standard maximum for other insured mortgages remains 25 years.
A buyer has a gross monthly income of $8,000. Using the GDS (Gross Debt Service) ratio of 32%, what is the maximum allowable monthly housing expense?
Answer: $2,560
GDS = 32% × gross monthly income. $8,000 × 0.32 = $2,560. This represents the maximum allowable PITH (principal, interest, taxes, and heating) as a percentage of gross monthly income.
What does it mean when a mortgage is described as 'open'?
Answer: The borrower can repay all or part of the mortgage principal at any time without paying a prepayment penalty
An open mortgage allows the borrower to make any amount of prepayment — including full repayment — at any time during the term without incurring a prepayment penalty. This flexibility typically comes with a higher interest rate than a closed mortgage.
In BC, which of the following describes a 'vendor take-back mortgage' (VTB)?
Answer: A mortgage provided by the seller to the buyer as part of the purchase financing, with the property as security
A vendor take-back (VTB) mortgage is a financing arrangement where the seller acts as the lender — providing all or part of the purchase financing directly to the buyer, secured by a mortgage on the property being sold.
For a conventional (uninsured) mortgage in BC, the minimum down payment required is:
Answer: 20% of the purchase price
A conventional mortgage (which does not require CMHC mortgage default insurance) requires a minimum 20% down payment. Mortgages with less than 20% down are considered 'high-ratio' and must be insured.