Deck 7: Managing Your Financial Resources - Purchasing and Financing a Home

Question 1

Since real estate agents are licensed and bonded,they are required to give you unbiased information about real estate purchases.

Answer 1

False

Question 2

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.

Answer 2

False

Question 3

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.

Answer 3

False

Question 4

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

Question 5

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

Question 6

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

Question 7

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

Question 8

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

Question 9

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.

Question 10

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.

Question 11

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.

Question 12

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

Question 13

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.

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.

Question 15

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

Question 16

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.

Question 17

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

Question 18

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

Question 19

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

Question 20

Jane's monthly gross income is $4000 and her debt payments are $400 per month.Given GDS of 30 percent and TDS of 40 percent,she will be able to qualify for mortgage-related debt payments of $1200 per month.

Question 21

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

Question 22

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

Question 23

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.

Question 24

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.

Question 25

Which of the following costs associated with home ownership is hardest to budget for?

A)Insurance
B)Taxes
C)Repairs
D)Mortgage payments

Question 26

Loan protection life and disability insurance protects the lending institution against financial loss as a result of injury,illness,or death of the borrower.

Question 27

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.

Question 28

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.

Question 29

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

Question 30

When selling a home,which of the following costs will you incur?

A)Loan application fees
B)Realtor's commission
C)Insurance premiums
D)Appraisal fees

Question 31

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.

Question 32

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.

Question 33

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

Question 34

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

Question 35

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.

Question 36

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

Question 37

The maximum amortization period for a high ratio mortgage is 25 years.

Question 38

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.

Question 39

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

Question 40

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

Question 41

A house is appraised at $298 000 and you have a down payment of $25 000.CMHC charges the following rates on the loan to value ratio: Up to and including 80 percent,1.00 percent;up to 85 percent,1.75 percent;up to 90 percent,2.00 percent;up to 95 percent 2.75 percent.What will be the approximate total amount of the mortgage if the CMHC fee is included in it?

A)$278 460
B)$281 195
C)$278 996
D)$280 508

Question 42

Mertyl is interested in buying a house worth $335 000 and has a down payment of $40 000.What will be the CMHC insurance premium? CMHC charges the following rates on the loan to value ratio: Up to and including 80 percent,1.00 percent;up to 85 percent,1.75 percent;up to 90 percent,2.00 percent;up to 95 percent 2.75 percent.

A)$5900.00
B)$6700.00
C)$5162.50
D)$5862.50

Question 43

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

Question 44

Which of the following options regarding a $200 000 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

Question 45

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

Question 46

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

Question 47

A house for sale is listed at $310 000 and you manage to win the competitive bid with an offer of $312 000.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

Question 48

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

Question 49

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.

Question 50

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

Question 51

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 30 percent,what will be the lowest monthly income that will qualify for the mortgage financing?

A)$4557
B)$4857
C)$4257
D)$4890

Question 52

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 go up if prime goes up.

Question 53

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

Question 54

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.

Question 55

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.

Question 56

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.

Question 57

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.

Question 58

A variable-rate mortgage (VRM)

A)changes the amortization when interest rates change.
B)has the shortest amortization.
C)changes the payment amount when interest rates change.
D)is another name for an open mortgage.

Question 59

Which mortgage option is best in the following scenario.The Jones are purchasing their first home for $250 000 and financing with a $200 000 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

Question 60

If Adam's house was purchased for $280 000 five years ago and is worth $296 000 now,and his mortgage was $224 000 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.

Question 61

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

Question 62

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

Question 63

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

Question 64

Peter and Mary make a $25 000 down payment on a $400 000 home.
What will be the CMHC insurance premium? CMHC charges the following rates on the loan to value ratio: Up to and including 80 percent,1.00 percent;up to 85 percent,1.75 percent;up to 90 percent,2.00 percent;up to 95 percent 2.75 percent.
Illustrate the calculation on the loan insurance premium that Peter and Mary have to pay?

Question 65

Illustrate how GDS and TDS ratios as well as cash flow are important in calculating what size mortgage a person can afford.Use the following example to illustrate your conclusion.
Hannah earns an annual salary of $72 000 and has following monthly expenses.

Hannah has $31 000 saved in her RRSP.There is a new condo development going up in her area and she hopes to be able to purchase her own place.The unit she has her heart set on costs $310 000 and they advertise a mortgage rate of 3.5%,compounded semi-annually,for this development.The property taxes will be $170 per month,heating costs $80,and condo fees $300.

Question 66

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 30 percent and TDS ratio of 40 percent?

A)$6333
B)$4750
C)$5180
D)$4953

Question 67

Indicate your assumptions and calculations and comment on whether buying versus renting would make more sense in the following scenario.The couple each grosses $4000 monthly income.They have $40 000 saved for the house purchase and are currently renting a two bedroom apartment for $1500 a month.They want to purchase a two bedroom condo for ?$300 000,which has monthly expenses as follows: property tax $220,heat $100,and condo fees $350.Consider closing costs,cash flow and other calculations to justify whether you recommend they buy,or not.

Question 68

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

Question 69

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.

Question 70

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 $75 000 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

Question 71

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

Question 72

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.

Question 73

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

Question 74

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.

Question 75

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 $20 000 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 $25 000 from their RRSPs tax free as long as paid back within fifteen years.

Question 76

Is purchasing a home an expense,an investment,or both? How important is it to consider how long you plan to remain in one location in order to determine the value in purchasing?

Question 77

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

Question 78

Describe some of the advantages and disadvantages of selling your home yourself instead of hiring a realtor.

Question 79

Discuss in detail all of the factors that may affect the value of your investment in a home in the future.