CHP 7: Purchasing and Financing a Home
) Mohammed and Parm are recently married and neither of them has ever owned a home. They wish to use the Home Buyers' Plan (HBP) to make their down payment on their first home. If they each have in their RRSPs, how much can they access for their down payment through the HBP? A) $100 000 B) $40 000 C) $25 000 D) $50 000
D
It is possible to sell a house without paying a commission
TRUE
Refinancing a home may incur penalties which outweigh the benefits of acquiring a lower interest rate, so should therefore be thoroughly investigated before acting.
TRUE
Malcolm has a down payment of $45 000 on a house valued at $200 000. He might be better off to borrow an additional $5000 on a personal loan to avoid the high ratio insurance premium
FALSE
Which of the following is accurate regarding types of mortgages? A) A convertible VRM gives you protection in case interest rates go up. B) Open mortgages offer slightly better rates than closed mortgages. C) Most fixed-rate mortgages are convertible. D) With a variable-rate mortgage your payments will never go up if prime goes up.
A
Most individuals pay for a home with a down payment of five percent or less and then obtain a mortgage to finance the rest.
FALSE
Online realtor services are more convenient, but usually charge higher commissions than traditional full-service real estate companies.
FALSE
) If Adam's house was purchased for $280 000 five years ago and is worth now, and his mortgage was $ and amortized over 25 years, at four percent interest, compounded semi-annually, what is his equity in his house now? (To the nearest $1000) A) $101 000 B) $72 000 C) $85 000 D) Not enough information given to answer this
A
Mertyl is interested in buying a house worth $335 000 and has a down payment of . CMHC charges the following rates on the loan to value ratio: Up to and including 80 percent, 2.40 percent; up to 85 percent, 2.80 percent; up to 90 percent, 3.10 percent; up to 95 percent 4.00 percent. What will be the CMHC insurance premium? A) $9145 B) $8260 C) $7080 D) $11 800
A
The highest current CMHC premium is A) 4.00%. B) 4.50%. C) 5.00%. D) 5.50%.
A
Which of the following options regarding a mortgage, compounded semi-annually requires the lowest total interest payment? A) A 4.0 percent interest rate, paid monthly and amortized over 15 years B) A 3.5 percent interest rate, paid monthly and amortized over 20 years C) A 3.5 percent interest rate, paid biweekly and amortized over 18 years D) A 3.25 percent interest rate, paid monthly and amortized over 22 years
A
Which of the following payment options would result in the lowest amount of interest paid on a mortgage? A) Accelerated biweekly B) Biweekly C) Weekly D) Semi-monthly
A
What should be the first step in the home-buying process? A) Determine the price range for houses in your target area. B) Determine how much you can afford to pay monthly for a mortgage. C) Compare the costs of buying versus renting. D) Interview three realtors.
B
For a $72 000 mortgage at nine percent, the monthly payments would be $730 for a 15-year mortgage and $579 for a 30-year mortgage. What would be the expected total savings in interest by taking a 15-year mortgage? A) $27 180 B) $54 360 C) $77 040 D) $131 000
C
Ianna has found a fixed rate mortgage for $300 000 at four percent interest amortized over 30 years. Her payment will be $1426 per month. How much would her payment be if she wanted to amortize the mortgage over 15 years? A) $2219 B) $1733 C) $2214 D) $1711
C
If you have a lot of debt such as a car loan, student loan, line of credit and credit card balances which you carry from month to month, which will be most relevant in determining how much mortgage you can afford? A) GDS ratio B) Both TDS and GDS equally C) TDS ratio D) HBP
C
Paying off an existing mortgage with a new mortgage that has a lower interest rate is referred to as A) mortgage replacement. B) mortgage substitution. C) mortgage refinancing. D) mortgage modification.
C
When is refinancing a home worthwhile? A) When interest rates have dropped more than two percent B) When you can decrease your monthly payment significantly C) When the penalty cost is less than the financial benefit D) When interest rates have dropped significantly
C
Which of the following costs associated with home ownership is hardest to budget for? A) Insurance B) Taxes C) Repairs D) Mortgage payments
C
Chuck obtained a mortgage of $90 000 to finance a $120 000 home. The title insurance will be $400, appraisal fee is $500, land transfer tax is one percent of the value of the property, legal fees are $900, and he will pay $900 to the movers and has planned to send $6000 on renovations. How much are his closing costs? A) $1800 B) $3900 C) $2100 D) $3000
D
If you make an offer to the seller through the real estate broker, the following may happen except A) the seller may accept your offer. B) the seller may reject your offer. C) the seller may reject your offer and suggest that you revise the price. D) the seller may accept your offer at and suggest that you revise the price.
D
Lenders require Canada Mortgage and Housing Corporation insurance on high ratio mortgages. What is the primary purpose of this insurance? A) Life insurance for the borrowers to make sure they can pay off the house if one of them dies B) Disability insurance for the borrowers to make sure they can pay off the house if one of them can no longer work C) Insurance for the borrower in the event of foreclosure to compensate them for the full price they paid for the home D) Insurance for the lender to protect their collateral in case the borrower defaults and the home has declined in value
D
The interest rate on a VRM may be adjusted A) only when prime rate moves higher. B) only on the expiry of the term. C) only when prime rate moves lower. D) any time the prime rate changes.
D
When purchasing a home, which of the following costs will you incur? A) Finder's fee B) Realtor's commission C) Tax arrears payments D) Appraisal fee
D
) Due to the high interest rates charged, a vendor take-back mortgage is generally a worse option than a high ratio mortgage.
FALSE
) It is impossible to finance a home purchase worth $210 000 with only $10 500 to put down.
FALSE
A fixed-rate mortgage will have a set amount applied to the principal with each monthly payment.
FALSE
A high ratio mortgage refers to a mortgage where the down payment is less than 10% of the home's appraised value.
FALSE
A house valued at $288 000 with a down payment of $63 000 will result in an extra charge for a high ratio mortgage
FALSE
A variable-rate mortgage starts with higher payments, which decrease as the mortgage is paid off.
FALSE
A 15-year mortgage compared to a 30-year mortgage has A) higher total principal payments. B) lower monthly payments. C) higher total payments. D) lower total payments.
D
A house is appraised at $298 000 and you have a down payment of . CMHC charges the following rates on the loan to value ratio: Up to and including 80 percent, 2.40 percent; up to 85 percent, 2.80 percent; up to 90 percent, 3.10 percent; up to 95 percent 4.00 percent. What will be the approximate total amount of the mortgage if the CMHC fee is included in it? A) $280 152 B) $280 644 C) $281 463 D) $283 920
D
Which of the following is true about the Home Buyers' Plan? A) It's a government program which enables first time home owners with less than five percent down payment to purchase a home using CMHC insurance. B) It's a government program exempting Canadian first time home buyers in certain provinces from land transfer tax. C) It's a government program allowing first time home buyers to withdraw from their RRSPs tax free as long as paid back within ten years. D) It's a government program allowing first time home buyers to withdraw from their RRSPs tax free as long as paid back within fifteen years.
D
For a 25-year mortgage of $300 000 with monthly payments of $1745 and interest rate of five percent compounded semi-annually, the amount of principle paid off over five years would be approximately $34 500.
TRUE
Principal, interest, and property taxes on a mortgage are $1209, with heating costs of $68 and condo fees of $180 monthly. The borrower also has a student loan with $100 monthly payments. If the gross debt service ratio required is 32 percent, what will be the lowest monthly income that will qualify for the mortgage financing? A) $4272 B) $4553 C) $3991 D) $4584
A
The total household income available is $4032. Mortgage payments including taxes, principal, and interest are $1174. In addition, there are condo fees of $150, heating costs of $65 monthly, a student loan payment of $100 and a car lease of $141. What is the total debt service ratio? A) 38.6 percent B) 35.1 percent C) 36.1 percent D) 40.4 percent
A
What is the most significant cause for concern in selecting a variable-rate mortgage? A) Interest rate increases B) Lack of convertibility C) The locked in term D) Lack of security
A
The interest you would pay on a $200 000 mortgage, amortized over 25 years, with an interest rate of six percent compounded semi-annually, would be $300 000.
FALSE
Which mortgage option is best in the following scenario. The Jones are purchasing their first home for and financing with a mortgage. They expect interest rates to stay the same for the next five years and have no prospects for any increase in their incomes. The prime rate is three percent. A) A five-year closed mortgage at five and a half percent B) A four-year closed mortgage at five and a half percent C) A five-year open VRM at prime plus three percent D) A two-year open convertible VRM at prime plus three percent
A
Which of the following would be the best advice in a decision to buy or rent a house? A) You should objectively perform the financial assessment. B) If mortgage payments are more than renting, then you should rent. C) Buying is always better because of the equity you get in the long term. D) If interest costs are less than renting, then you should buy.
A
Why is a conventional mortgage a good idea for a buyer? A) You will not need to purchase CMHC insurance. B) You will not need to purchase life insurance. C) You will get a better interest rate. D) You will not need to purchase life insurance or CMHC insurance.
A
For someone who has a $300 000 mortgage, at an interest rate of 6.3 percent, which mortgage would be the best choice for increasing one's net worth? A) 22-year amortization with monthly payments B) 25-year amortization with accelerated biweekly payments C) 22-year amortization with semi-monthly payments D) 25-year amortization with weekly payments
B
How are most home purchases initially funded? A) With a vendor take-back mortgage B) With a 5 to 20 percent down payment and a mortgage C) With a 0 to 5 percent down payment and a mortgage D) With a 25 to 50 percent down payment and a mortgage
B
Making extra mortgage payments does which of the following? A) Reduces the payment amount B) Reduces the length of the loan C) Increases total amount paid D) Increases cash flow
B
Mortgage companies usually charge interest semi-annually. What would be the effective rate of interest on a mortgage at 8.25 percent compounded semi-annually? A) 8.56 percent B) 8.42 percent C) 8.46 percent D) 8.38 percent
B
The lawyer normally will look after services for you when purchasing a home except for the A) legal fees and disbursements. B) home inspection fee. C) interest adjustment. D) title insurance.
B
The total household income available is $3963. Mortgage payments including taxes, principal, and interest are $1189. In addition, there are condo fees of $126 and heating costs of $56 monthly and a car lease of $241. What is the gross debt service ratio? A) 40.7 percent B) 33.0 percent C) 39.1 percent D) 34.6 percent
B
What is the purpose of getting a pre-approval certificate from a financial institution? A) To guarantee you a mortgage interest rate valid for 30 days B) To provide you with a guideline on how large a mortgage you can afford C) To guarantee funding so you can make an offer on a house D) To guarantee you will be approved for a mortgage
B
When selling a home, which of the following costs will you likely incur? A) Loan application fees B) Realtor's commission C) Insurance premiums D) Appraisal fees
B
Which of the following is an advantage of using online realtor services? A) Easier access to qualified realtors B) Enables you to shop online and save time C) Increases your chances of selling a house by over 20 percent D) Higher price for houses sold or lower prices for houses bought
B
Which of the following is true about condominiums? A) The purchaser owns the land on which the condominium is built. B) The maintenance fees of common areas are shared. C) Purchasing a condominium is a simpler decision than purchasing a house. D) Purchasing a condominium is very different than purchasing a house.
B
Which of the following is true regarding conventional mortgages? A) They require a down payment of at least twenty-five percent. B) They require a down payment of at least twenty percent. C) They receive more favourable interest rates for the buyer. D) They are a form of closed mortgage.
B
An amortization schedule shows all except the A) principal portion of the payment. B) interest portion of the payment. C) increase in equity. D) beginning and ending balances.
C
Martina and Anton are attempting to qualify for total mortgage financing of $1486, heating costs of $68, and they have a car loan payment of $346. What minimum gross monthly income will they need to qualify for both GDS ratio of 32 percent and TDS ratio of 40 percent? A) $5938 B) $4750 C) $4856 D) $4644
C
What is the best advice regarding mortgage financing? A) Get a pre-approval certificate to guarantee your mortgage approval. B) Let an expert choose the type and length of mortgage you will need. C) Ensure the mortgage payments do not absorb all your excess income. D) Select the maximum payments you can afford based on your cash flow.
C
What is the most important factor in determining the price of a home? A) An estimate of the future value of the home for resale B) The market analysis to find the per foot price of other homes nearby C) The highest price you are willing to pay that the seller will accept D) The quality of the structure and materials
C
Which of the following is the best advice in determining how large a mortgage you can afford? A) Get the most you can borrow to get the home you want B) Whatever the banks will offer based on your TDS and GDS ratios C) Less than what your cash flow indicates you can afford D) The maximum that your cash flow indicates you can afford
C
Which payment frequency, all else being equal, will generally save you the most interest over the life of your mortgage? A) Semi-monthly B) Biweekly C) Accelerated biweekly D) Weekly
C
Which would be the best mortgage option if you anticipate a windfall in the next year or two? A) A one-year closed fixed-rate mortgage B) A closed convertible five-year VRM C) An open variable-rate mortgage D) A closed two-year VRM
C
The terms duplex and semi-detached both refer to the same type of property.
FALSE
A house for sale is listed at $310 000 and you manage to win the competitive bid with an offer of . The appraisal indicates the value at $295 000. What will be the conventional mortgage loan amount approved by the bank? A) $248 000 B) $221 250 C) $249 600 D) $236 000
D
A house is sold for $300 000 and appraised for $285 000. What down payment will be needed to qualify for a conventional mortgage? A) $60 000 B) $57 000 C) $71 250 D) $72 000
D
Which of the following is most accurate in a case where a seller neglects to disclose a defect that affects the market value of the home they are selling? A) It is morally repugnant, but commonly done and there is no legal recourse. B) It is morally wrong, but is legal due to caveat emptor. C) It is morally repugnant, and the seller could be charged for criminal negligence. D) It is morally wrong, and the seller could be sued for misrepresentation.
D
Which of the following is not one of the closing costs in purchasing a home? A) Appraisal fee B) Home inspection fee C) Prepaid property tax D) Moving costs
D
To speed up the home-buying process, you should first give a verbal offer to see if the seller is willing to accept the price you are willing to offer.
FALSE
Total mortgage financing of $968 per month, and monthly debt payments of $530, given total monthly household income of $3457 results in a gross debt service ratio of 28 percent.
FALSE
If Jane had a total of $30 000 available for the purchase and transactions expenses to buy a condo, and an accepted offer of $150 000 for the property, she would be able to get a conventional mortgage.
FALSE
If the average price of homes you are considering went from $300 000 to $330 000 last year, it would make sense to estimate that they should be worth around $439 000 in three more years.
FALSE
In addition to closing costs, realtor fees of three to seven percent are charged when you buy a home.
FALSE
In order to be guaranteed to be approved for a mortgage, you should first acquire a pre-approval certificate.
FALSE
In order to qualify for a mortgage you must conform with both the gross debt service ratio and total debt service ratio
FALSE
It is a good idea not to disclose defects of the home you are trying to sell, since these will adversely affect your selling price or your ability to sell your home quickly.
FALSE
) Sharaz has gross household income of $3800 and wants to qualify for total monthly mortgage financing of $1330. Based on the gross debt service ratio, she should be approved.
TRUE
An interest adjustment occurs when there is a difference between the date on which you take possession of your home and the date from which your lender calculates your first mortgage payment.
TRUE
Gross debt service ratio refers to a calculation of all mortgage-related financing and must not exceed 32 percent of total household income.
TRUE
In choosing an open mortgage over a closed mortgage, you should consider the likelihood of being able to prepay principal to make up for the higher interest rate on the open mortgage.
TRUE
Jane's monthly gross income is $4000 and her debt payments are $400 per month. Given a GDS limit of 320 percent and TDS limit of 40 percent, she will be able to qualify for mortgage-related debt payments of $1200 per month.
TRUE
Loan protection life and disability insurance protects the lending institution against financial loss as a result of injury, illness, or death of the borrower.
TRUE
The maximum amortization period for a high ratio mortgage is 25 years.
TRUE
The purchase of a home represents a potential risk if you need to move quickly and the home does not appreciate rapidly in value.
TRUE