BC Real Estate Trading Services Course Mortgage Financing — Questions and Answers
Question 1: What is the maximum amortization period for an insured mortgage in Canada?
- 30 years
- 25 years (Correct answer)
- 35 years
- 20 years
Correct answer: 25 years
The maximum amortization period for an insured mortgage (one with mortgage default insurance, required when the down payment is less than 20%) in Canada is 25 years. Uninsured mortgages (20%+ down payment) may qualify for longer amortization periods depending on the lender, but insured mortgages are capped at 25 years.
Question 2: What is the minimum down payment required to purchase a home in Canada?
- 20% of the purchase price for all homes
- 5% on the first $500,000 and 10% on the portion between $500,000 and $999,999, with 20% required for homes $1 million and above (Correct answer)
- 10% of the purchase price for all homes
- No down payment is required in Canada
Correct answer: 5% on the first $500,000 and 10% on the portion between $500,000 and $999,999, with 20% required for homes $1 million and above
The minimum down payment in Canada is: 5% on the first $500,000 of the purchase price, 10% on the portion between $500,000 and $999,999, and 20% for homes priced at $1 million or more. Purchases with less than 20% down require mortgage default insurance from CMHC, Sagen, or Canada Guaranty.
Question 3: What is 'mortgage default insurance' and when is it required in Canada?
- Insurance that protects the borrower if they lose their job
- Insurance that protects the lender against borrower default, required when the down payment is less than 20% of the purchase price (Correct answer)
- Insurance that covers the property against fire and natural disasters
- Optional insurance that reduces the interest rate
Correct answer: Insurance that protects the lender against borrower default, required when the down payment is less than 20% of the purchase price
Mortgage default insurance (provided by CMHC, Sagen, or Canada Guaranty) protects the lender — not the borrower — if the borrower defaults on their mortgage payments. It is required by law when the down payment is less than 20%. The premium is paid by the borrower and can be added to the mortgage amount.
Question 4: What is the 'stress test' for Canadian mortgages?
- A physical examination required before mortgage approval
- A requirement that borrowers must qualify at the higher of their contract rate plus 2% or the Bank of Canada's qualifying rate, to ensure they can handle rate increases (Correct answer)
- A test of the property's structural integrity
- A credit score requirement of at least 750
Correct answer: A requirement that borrowers must qualify at the higher of their contract rate plus 2% or the Bank of Canada's qualifying rate, to ensure they can handle rate increases
The mortgage stress test (B-20 guideline) requires all federally regulated lenders to qualify borrowers at the higher of their actual contract rate plus 2% or the Bank of Canada's benchmark qualifying rate. This ensures borrowers can afford payments if interest rates rise. It applies to both insured and uninsured mortgages.
Question 5: What is the difference between a 'fixed rate' and 'variable rate' mortgage?
- Fixed rate mortgages are only available for commercial properties
- A fixed rate stays the same for the entire term regardless of market changes, while a variable rate fluctuates with the lender's prime rate, which is influenced by the Bank of Canada's policy rate (Correct answer)
- Variable rate mortgages always have lower rates than fixed
- There is no practical difference between them
Correct answer: A fixed rate stays the same for the entire term regardless of market changes, while a variable rate fluctuates with the lender's prime rate, which is influenced by the Bank of Canada's policy rate
A fixed rate mortgage locks in the interest rate for the entire mortgage term (e.g., 5 years), providing payment certainty. A variable rate mortgage fluctuates with the lender's prime rate, which moves with the Bank of Canada's overnight rate. Variable rates may result in lower costs over time but carry the risk of rate increases.
Question 6: What is a 'mortgage term' versus 'amortization period'?
- They are the same thing
- The term is the length of the current mortgage agreement (typically 1-5 years), while the amortization is the total time to pay off the mortgage in full (typically 25 years) (Correct answer)
- The term is the total repayment period and the amortization is the renewal period
- The term applies to variable rates and amortization applies to fixed rates
Correct answer: The term is the length of the current mortgage agreement (typically 1-5 years), while the amortization is the total time to pay off the mortgage in full (typically 25 years)
The mortgage term is the length of the current mortgage contract with the lender (commonly 5 years but can range from 6 months to 10 years). The amortization period is the total time to fully repay the mortgage (typically 25 years for insured mortgages). At the end of each term, the mortgage is renewed (potentially with a different lender or rate) for the remaining amortization.
BC Real Estate Trading Services Course Mortgage Financing
What is the maximum amortization period for an insured mortgage in Canada?