BC Real Estate Trading Services Course Financing & Mortgages 1 — Questions and Answers
Question 1: In BC, the maximum amortization period for an insured mortgage (less than 20% down payment) as of 2024 is:
- 20 years
- 25 years
- 30 years (Correct answer)
- 35 years
Correct answer: 30 years
As of August 2024, the federal government extended the maximum amortization period for insured mortgages (high-ratio) to 30 years for first-time buyers purchasing new construction. For most insured mortgages, the standard maximum remains 25 years, but the 30-year option was introduced for qualifying buyers.
Question 2: In Canada, mortgage default insurance is required when the down payment is:
- Less than 10% of the purchase price
- Less than 20% of the purchase price (Correct answer)
- Less than 25% of the purchase price
- Less than 5% of the purchase price
Correct answer: Less than 20% of the purchase price
CMHC and other approved insurers require mortgage default insurance when the buyer's down payment is less than 20% of the purchase price. This is a federally mandated requirement.
Question 3: In BC, a 'first mortgage' takes priority over a 'second mortgage' because:
- First mortgages have lower interest rates
- Priority is determined by registration date — the first registered has priority in case of default (Correct answer)
- First mortgages are registered with BCFSA
- Provincial law always gives priority to larger loans
Correct answer: Priority is determined by registration date — the first registered has priority in case of default
Under BC's Land Title Act, mortgage priority is determined by the date and time of registration. The first registered mortgage has first claim on proceeds in the event of default and forced sale.
Question 4: The 'mortgage stress test' in Canada requires borrowers to qualify at:
- The contract rate only
- The greater of the contract rate plus 2% or the Bank of Canada's benchmark qualifying rate (Correct answer)
- The prime rate plus 5%
- A fixed rate of 5.25% regardless of the contract rate
Correct answer: The greater of the contract rate plus 2% or the Bank of Canada's benchmark qualifying rate
Canada's federal mortgage stress test requires all borrowers (insured and uninsured) to qualify at the greater of their contract rate plus 2% or the Bank of Canada's minimum qualifying rate (currently 5.25%), whichever is higher.
Question 5: In BC, a 'conventional mortgage' is one where the loan-to-value (LTV) ratio is:
- More than 80% of the property value
- 80% or less of the property value (at least 20% down payment) (Correct answer)
- Exactly 75% of the property value
- Less than 65% of the property value
Correct answer: 80% or less of the property value (at least 20% down payment)
A conventional mortgage has an LTV of 80% or less (20%+ down payment) and does not require mortgage default insurance. A high-ratio mortgage has LTV above 80% and requires CMHC/Sagen/Canada Guaranty insurance.
Question 6: In BC, which of the following is the correct definition of 'amortization period'?
- The period during which the interest rate is guaranteed by the lender
- The total length of time over which the loan is scheduled to be fully repaid (Correct answer)
- The number of years until the mortgage must be renewed
- The waiting period before the first payment is due
Correct answer: The total length of time over which the loan is scheduled to be fully repaid
The amortization period is the total time to fully repay the mortgage if all payments are made as scheduled. It is different from the term, which is the period the current interest rate and conditions apply.
BC Real Estate Trading Services Course Financing & Mortgages 1
In BC, the maximum amortization period for an insured mortgage (less than 20% down payment) as of 2024 is: