Conventional Mortgage - answer✔Down payment greater than 20%.
Large down payment = easier to obtain a mortgage
Does not require mortgage loan insurance.
Can avoid the CMHC fee (Canadian Mortgage and Housing Corporation)
High-ratio mortgage
Why are they popular? - answer✔- Down payment less than 20%
- Requires mortgage insurance
If the borrower defaults the lender is paid back by the insurer.
Allows consumers to purchase homes at a rate similar to bigger down payments
Strategies to pay off a mortgage fast - answer✔Shorten the amortization period
- Choose the shortest total length to pay off the entire mortgage that is affordable
Negotiate a lower-interest rate on renewal
- If mortgage rates are lower when it's time to renew, renegotiated
- If a lower rate is negotiated, keep amount of the mortgage payment the same
Make prepayments, if a prepayment option exists
Choose weekly or bi-weekly accelerated payment options
"Save and pay"
- Save in an RRSP
- Use the tax refund to pay down the mortgage each year
Home Buyers Plan - answer✔a plan where first time home buyers can borrow up to $35k from
their RRSP to use toward a home. If you have a partner or spouse it becomes $35k per person.
The amount borrowed must be repaid over 15 years, or the money becomes income on your
tax return, no matter how big or small the amount. RRSP Based, Tax sheltered growth is a main
feature.
TFSA - answer✔a savings plan with limited contribution room each year. Tax is not deducted
from contributions, and withdrawals are not taxable. These are flexible savings plans that could
be used for many goals, not just home specific. Tax sheltered growth is a main feature.
Risk vs. speculative risk
Which can be insured? - answer✔Pure risk is a risk in which there is only a chance of loss.
Property, personal and liability risks fall under this category. This type of risk is insurable,
accidental, and unintentional. The nature of the risk can be predicted.
A speculative risk is that there is a chance of loss or a gain, but unfortunately it is uninsurable.
An example of this is starting a small business (may or may not succeed) or gambling.
4 risk management methods
Explain what they are + give example - answer✔Risk AVOIDANCE, in which to avoid the chance
of loss altogether. An example of this is avoiding certain routes when driving to prevent
accidents.
Risk REDUCTION, in which to reduce the chances of loss occurring. This type of method is
effective with peril risks. An example of this is preparing house for a big hurricane, or wearing a
seatbelt properly in a vehicle (not to prevent, but reduces chances of major injuries)
Risk ASSUMPTION, in which you take on responsibility for loss or injury, risk was not avoidable.
An example of this is the aftermath of gambling. Self-insurance is a monetary fund to cover the
cost of loss.
Risk SHIFTING, in which the transfer of the cost of loss is forwarded to an insurance company.
What is the difference between "named perils" and "all risks" on an insurance policy? -
answer✔To provide consumers with the coverage best suited to their individual needs,
insurance companies offer several policy forms. Each form differs in the number of perils, or
events that could cause a loss, that it provides protection against. Named perils coverage
designates what's covered but also has exclusions. All risk coverage assumes that everything is
covered, except for the exclusions.
Two different policies:
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