Deck 8: Personal Financing - Purchasing and Financing a Home

Question 1

Condominium monthly maintenance costs generally include water, sewer, garbage, and maintenance or other amenities such as a pool, clubhouse, and tennis court.

Answer 1

True

Question 2

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

Answer 2

False

Question 3

Most realtors agree that location more than anything influences a home's future resale value.

Answer 3

True

Question 4

In determining the amount of down payment and monthly mortgage payments you can afford, you should maintain some extra funds for liquidity purposes to cover unanticipated bills.

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.

Question 6

Condominiums have the advantages of sharing expenses among owners and giving the owners more privacy than single-family homes.

Question 7

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

Question 8

A good way to estimate the market value of a home is to multiply the number of square feet by the average price per square foot of similar homes in the area.

Question 9

When choosing a home, a convenient location can save you considerable travel time and expenses.

Question 10

Real estate agents usually offer good advice, but since they have a vested interest in you buying from them, you should also factor in your own judgment.

Question 11

The specific location of your home can influence the amount of property taxes and insurance you will pay.

Question 12

Proximity to schools can increase home values, while increased distance from schools often lowers home values.

Question 13

Since most of the problems have already been fixed, older homes usually have lower maintenance expenses than newer homes.

Question 14

Homes near areas that have just been zoned for industrial use become more valuable.

Question 15

Buying a home may be the single biggest investment you will ever make, so the decision should be taken very seriously.

Question 16

Most individuals pay for a home with a down payment of 5 percent or less and then obtain a mortgage to finance the rest.

Question 17

Your monthly payments for a house are likely to be as high as rent when you factor in mortgage payments, property taxes, homeowner's insurance, and home repairs.

Question 18

Purchasing a condominium is an alternative to purchasing a home but it also requires good decision-making skills.

Question 19

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

Question 20

If a person chooses to purchase a more expensive home, he or she may have to cut expenses in other areas such as entertainment.

Question 21

Government-backed mortgages may require lower down payments than conventional mortgages, but usually charge higher interest rates.

Question 22

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 23

Since there is no limit on how much and how fast variable-rate mortgages can increase, most homeowners are afraid to take out this kind of loan.

Question 24

If you think interest rates will rise in the near future, you should seek a variable-rate mortgage.

Question 25

Refinancing a home requires you to pay many of the same costs as the original loan and should therefore be thoroughly investigated.

Question 26

For a conventional mortgage, a lender typically requires a down payment of 10 to 20 percent of the home's selling price.

Question 27

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

Question 28

A house valued at $288 000 with a down payment of $71 000 will result in an extra charge for a high ratio mortgage.

Question 29

When buying a home, the seller pays the realtor commission, so you pay no fee for realtor services except in the form of a higher purchase price.

Question 30

The schedule that shows your monthly home payment and the amounts applied to principal and interest each month is called a depreciation table.

Question 31

To simplify and 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.

Question 32

In addition to closing costs, realtor fees of about 10 percent are charged when you buy a home.

Question 33

A new home that costs $400 000 will result in a GST sales tax of $20 000.

Question 34

When comparing 15-year and 30-year amortized mortgages, over the life of the loan you will have smaller payments but pay more interest with the 30-year mortgage.

Question 35

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

Question 36

A house purchased in Ontario for $300 000 will result in an additional charge for land transfer tax in the amount of $4500.

Question 37

A sales contract stipulates not only the price offered for a home, but also the repairs to be completed and the move-in date requested by the buyer.

Question 38

For a long-term home loan, such as 30 years, the amount of principal you pay on your loan during the first few years is quite small.

Question 39

Renting is almost always a better financial option since owning a home has so many costs such as repair, insurance, and taxes.

Question 40

There are a number of different mortgage types to choose from in financing a home or condominium, such as fixed or variable loans for 15 or 30 years.

Question 41

A gross household income of $3800 and total monthly mortgage financing of $1330 will result in an approved mortgage loan application.

Question 42

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

Question 43

What should be the first step in the home-buying process?

A)Identify the specific home you want to purchase
B)Determine a realistic affordable price range
C)Compare the costs of buying and renting
D)Find a good realtor

Question 44

Total mortgage financing of $968 per month with a total monthly household income of $3457 results in a gross debt service ratio of 28 percent.

Question 45

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

Question 46

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 47

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

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

Question 48

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)You will be responsible for repairing your roof.

Question 49

Which of the following should not be considered when selecting a condominium?

A)Availability of companies that perform maintenance and repair services in the area
B)Taxes
C)Resale value
D)The present and future cost of condominium maintenance fees

Question 50

Which of the following is false about condominiums?

A)Fixed monthly fees are charged to cover maintenance costs.
B)A jointly owned company manages the amenities such as tennis courts and a swimming pool.
C)They share common areas such as a pool, tennis court, and club house.
D)They combine funds for maintenance.

Question 51

In choosing an open mortgage over a closed mortgage, you should consider your ability to prepay principal to make up for the higher interest rate on the open mortgage.

Question 52

Of the following criteria for selecting a home, which would usually diminish the most in importance as the age of the buyers exceeds fifty years old?

A)Price
B)Convenient location
C)School system
D)Taxes

Question 53

An open mortgage will carry a lower interest rate than a closed mortgage.

Question 54

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

Question 55

In general, financial institutions will provide you with a mortgage loan only if your gross debt service ratio is no more than 32 percent.

Question 56

A closed mortgage does not allow you to pay additional sums off the principal without paying a penalty.

Question 57

What is the best advice regarding a 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 58

The maximum amortization period for the mortgage debt will be more than 35 years.

Question 59

An interest adjustment occurs when there is no 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 60

Condominium expenses are shared among unit owners, which is similar to the owners of a house.

Question 61

If Tom feels that interest rates will rise in the next two years, which type of mortgage should he select?

A)A fixed-rate mortgage
B)A variable-rate mortgage
C)A longer amortization
D)An open VRM

Question 62

Who is responsible for determining the value of the home for the mortgage application process?

A)Banker
B)Loan officer
C)Real estate appraiser
D)Real estate agent

Question 63

Which of the following is a typical closing cost which the buyer takes care of?

A)Moving costs
B)Land survey
C)Home inspection fee
D)Deposit

Question 64

If a home buyer shops around, he or she can probably avoid which of the following fees?

A)Title insurance
B)Legal fees
C)CMHC fees
D)Loan administration fees

Question 65

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 66

Which of the following is the best advice in determining how large a mortgage you can afford?

A)Whatever you need to 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 67

A 15-year mortgage compared to a 30-year mortgage has

A)higher interest rates.
B)higher interest costs at the beginning.
C)lower interest rates.
D)a faster buildup of equity.

Question 68

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 69

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 70

Fixed-rate mortgages usually have

A)a constant interest rate.
B)the shortest amortization.
C)the lowest interest rate.
D)prime plus a fixed rate.

Question 71

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 72

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)Increase your chances of selling a house by about 50 percent.
D)Higher price for houses sold or lower prices for houses bought.

Question 73

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 74

If you buy a new home rather than a older home, you will have to pay

A)real estate commissions.
B)fire insurance premiums.
C)deposit for some utilities (phone, electric, etc.).
D)GST.

Question 75

Which of the following is true?

A)Conventional mortgages require a down payment of twenty-five percent.
B)Conventional mortgages require a down payment of at least twenty percent.
C)Land transfer tax is a relatively minor expense in all Canadian Provinces.
D)Appraisal fees range between $1000 and $2000.

Question 76

On a fixed-rate mortgage, the monthly

A)payment remains constant and the interest rate fluctuates.
B)payment remains constant and the interest rate stays the same.
C)a reduction in interest rates shortens the amortization period.
D)payment remains constant until the balloon payment.

Question 77

Which of the following is most important when selecting a home?

A)Taxes
B)Resale value
C)Price
D)Location

Question 78

A house appraises at $285 000. What down payment will be needed to qualify for a conventional mortgage?

A)$228 000
B)$57 000
C)$71 250
D)$28 500

Question 79

Ianna has found a fixed rate mortgage for $300,000 at four per cent interest amortized over 30 years. Her payment will be $1426.56 per month. How much would her payment be if she wanted to amortize the mortgage over 15 years?

A)$2853.12
B)$1733.33
C)$2214.12
D)$1711.46

Question 80

Why is a conventional mortgage a good idea?

A)You will not need to purchase CMHC insurance.
B)You will not need to purchase life insurance.
C)The bank will insure it for you.
D)You will not need to purchase life insurance or CMHC insurance.