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RECA Residential Unit 6 study guide with complete solution
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RECA Residential Unit 6 study guide with complete solution
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RECA Residential Unit 6 study guide withcomplete solution
"Equity" meaning - ANS The market value of the property, less the outstanding balance of
the mortgage and any other financial obligation registered against the property
Definition of "Mortgage" - ANS The pledging of real property to a loender as security for a
debt. In other words, a mortgage represents the security over property given to a lender for
repayment of a loan.
Meaning of redemption (as related to mortgages) - ANS The act of performing the
borrowers obligations and consequential discharge of the mortgage on the property. When the
borrower or another on their behalf, pays off the debt as promised, the mortgage is redeemed.
Meaning of "underwriter" as related to mortgage - ANS An individual employed by a lender
or insurer who is responsible for verifying the mortgage application information and supporting
documentation, making a risk assessment of the applicant(s) and the subject property, and
approving or declining the mortgage based on this assessment.
What is the capital market (in relation to financing)? - ANS market of transferring funds from
savers to borrowers
What is the secondary mortgage market - ANS the bundling and reselling of mortgages as
financial investments.
Definition of Mortgage-backed securities - ANS A financial investment backed by pools of
mortgages. Historically, mortgage-backed securities have consisted of insured residential
mortgages. Investors receive monthly payments from the cash flow generated by the underlying
mortgages.
2 ways to calculate interest (related to interest rates) - ANS simple interest and compound
interest
When is compound interest generally used? - ANS charged on long-term loans (ie. greater
than 1 year). Simply interest is generally charged on short-term loans (ie. less than 1 year)
What does the Interest Act of Canada do? - ANS a federal legislation that imposes
requirements on how interest is described and calculated for mortgages.
, Does the Interest Act of Canada impose a limit on the rate that can be charged? - ANS No,
it does not, but it does stipulate that when the interest rate is not indicated in the mortgage
agreement, the applicable annual interest rate to be charged by the lender is 5%.
True or false - The interest Act of Canada legislation prevents a lender from charging a higher
interest rate following a default on a mortgage of real property than that charged during the term
of the mortgage. - ANS True
According to the criminal code of Canada, from what percentage is an effective annual interest
rate a criminal rate of interest? - ANS above 60%
Mortgage lenders can be categorized into these 4 groups - ANS 1. Institutional lenders 2.
Canadian Mortgage and Housing Corporation 3. Non-Institutional lenders 4. Private lenders
Is there a difference between Institutional lenders and conventional lenders? - ANS No
What are the 3 main goals of the Bank Act? - ANS 1. To protect depositors' funds 2. To
ensure the maintenance of cash reserves 3. To promote efficiency of the financial system
through competition
What is the Bank Act? - ANS Federal legislation that regulates Canada's chartered banks
What is the difference between a loan company and a trust company? - ANS A loan
company cannot provide trustee functions. By law, only trust companies are allowed to perform
these activities. Secondly, a loan company must obtain funds through the use of debentures as
opposed to short-term certificates and saving deposits.
Definition of Debenture - ANS A debt obligation that is not secured by physical assets or
collateral, but secured by the general creditworthiness and reputation of the issuer. Both
corporations and governments frequently issue this type of investment in order to secure capital.
How does the federal government offer mortgage-backed securities? (MBS) - ANS through
the National Housing Act (NHA) and administered by CMHC. Under the National Housing Act
Mortgage-backed Securities Program, investors are offered a secure investment in Canadian
residential mortgages.
Private lenders use these 3 types of investor funding - ANS 1. Mortgage investment
Corporations (MICs) 2. Syndicated mortgages 3. Their own money
What is a mortgage investment corporation? - ANS a private investment and lending
company designed specifically for loaning money secured by a mortgage. An MIC pools funds
from many different investors to lend money to borrowers and secures the loans with mortgages
registered on the titles of the properties. Investors purchase shares
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