Question 1

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.

Accepted Answer

The amount of principle paid off over five years would be approximately $34,500.

Question 2

Refinancing a home may incur penalties which outweigh the benefits of acquiring a lower interest rate,so should therefore be thoroughly investigated before acting.

Accepted Answer

Refinancing a home can come with penalties such as prepayment penalties, application fees, or closing costs. These costs can offset the benefits of a lower interest rate, so it is important to carefully consider whether or not refinancing is the right decision.

Question 3

It is impossible to finance a home purchase worth $210 000 with only $10 500 to put down.

Accepted Answer

Many mortgage programs allow for down payments as low as 3% or even 0% for certain buyers, so a $10,500 down payment on a $210,000 home (which is 5%) could be sufficient under the right circumstances.

Question 4

It is possible to sell a house without paying a commission.

Accepted Answer

Selling a house without paying a commission is possible if the owner decides to sell the house themselves and does not hire a real estate agent. However, they would need to be knowledgeable about the real estate market, have experience negotiating sales, and be prepared to handle all the paperwork and legal requirements involved in selling a property.

Question 5

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.

Accepted Answer

It is important to disclose any defects of the home you are trying to sell as failing to do so can result in legal consequences and negative reputation for the seller. It is better to be transparent and upfront about any issues and negotiate a fair price with the buyer.

Question 6

Gross debt service ratio refers to a calculation of all mortgage-related financing and must not exceed 32 percent of total household income.

Accepted Answer

This is a correct statement about the gross debt service ratio. It calculates all mortgage-related financing expenses and aims to ensure borrowers do not take on more debt than they can afford, by limiting it to no more than 32 percent of their total household income.

Question 7

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.

Accepted Answer

The assumption of a linear or consistent percentage increase in home prices year over year cannot be accurately applied without specific annual growth rates. The example provided suggests a 10% increase from $300,000 to $330,000 in one year, but extrapolating this to predict a price of $439,000 in three years assumes a continued or compounded rate of increase that is not specified or necessarily realistic.

Question 8

A house valued at $288 000 with a down payment of $63 000 will result in an extra charge for a high ratio mortgage.

Accepted Answer

A high ratio mortgage is typically required when the down payment is less than 20% of the property value. In this case, the down payment of $63 000 is over 20% of the property value of $288 000, so a high ratio mortgage would not be required and there would be no extra charge.

Question 9

The purchase of a home represents a potential risk if you need to move quickly and the home does not appreciate rapidly in value.

Accepted Answer

If you need to sell your home quickly and the home has not appreciated in value, you may end up selling for less than what you initially paid for it, resulting in a financial loss. Therefore, purchasing a home does represent a potential risk if you need to move quickly and cannot wait for the home to appreciate in value.

Question 10

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.

Accepted Answer

Jane's debt payments are $400 per month, which is 10% of her monthly gross income of $4000. This means that she has $3600 left over for housing expenses. The GDS limit is 32%, so she can spend up to $1152 per month on housing expenses. The TDS limit is 40%, so she can spend up to $1600 per month on total debt payments. Therefore, she will be able to qualify for mortgage-related debt payments of $1200 per month.

Question 11

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.

Accepted Answer

Conventional mortgages typically require a down payment of at least 20% of the home's purchase price. In this case, 20% of $150,000 is $30,000, which is the total amount Jane has available. This does not account for additional transaction expenses, meaning she would not meet the requirements for a conventional mortgage based solely on her available funds.

Question 12

In addition to closing costs,realtor fees of three to seven percent are charged when you buy a home.

Accepted Answer

Realtor fees, typically ranging from three to seven percent, are usually paid by the seller, not the buyer, when a home is sold.

Question 13

A variable-rate mortgage starts with higher payments,which decrease as the mortgage is paid off.

Accepted Answer

A variable-rate mortgage has payments that can fluctuate based on changes in interest rates, not necessarily starting higher and decreasing over time.

Question 14

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.

Accepted Answer

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 not be $300 000. It is important to note that while the question provides information about the mortgage principal, interest rate, and amortization period, it does not provide enough details to accurately calculate the total interest paid over the life of the mortgage. An accurate calculation would require information about the payment frequency, the start date of the mortgage, and any prepayments or penalties that may apply.

Question 15

Online realtor services are more convenient,but usually charge higher commissions than traditional full-service real estate companies.

Accepted Answer

Online realtor services often charge lower commissions than traditional full-service real estate companies because they operate with lower overhead costs and may offer more a la carte services, allowing for savings to be passed on to the customer.

Question 16

A fixed-rate mortgage will have a set amount applied to the principal with each monthly payment.

Accepted Answer

In a fixed-rate mortgage, the total monthly payment remains the same, but the portion that goes towards the principal increases over time, while the interest portion decreases.

Question 17

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.

Accepted Answer

A verbal offer is not legally binding in real estate transactions. It's more effective to submit a written offer through your real estate agent, as this formalizes your intentions and starts the negotiation process in a serious and legally recognized manner.

Question 18

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.

Accepted Answer

With an open mortgage, the borrower has the flexibility to make prepayments without penalty, but the interest rate is typically higher. If the borrower anticipates having extra funds to make prepayments, then the open mortgage may be a better option despite the higher interest rate. Therefore, it is important to consider the likelihood of being able to prepay principal before choosing an open mortgage over a closed mortgage.

Question 19

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.

Accepted Answer

To avoid high ratio insurance premium, the down payment should be at least 20% of the house value which is $40 000 in this case. Malcolm already has a down payment of $45 000 which is more than 20% of the house value. Therefore, he does not need to borrow an additional $5000 on a personal loan.

Question 20

Most individuals pay for a home with a down payment of five percent or less and then obtain a mortgage to finance the rest.

Accepted Answer

While some individuals may pay for a home with a down payment of five percent or less, it is not true for most. Many lenders require a down payment of at least 20% to avoid mortgage insurance or may offer lower rates to those with higher down payments.

Quiz 2: Managing Your Financial Resources - Purchasing and Financing a Home