Mahsa Combined

pdf

School

Fanshawe College *

*We aren’t endorsed by this school

Course

1

Subject

Finance

Date

Jan 9, 2024

Type

pdf

Pages

236

Uploaded by PresidentFireBarracuda42

Report
Practice Questions 1. Kara purchased a property worth $475,000 and requires a total mortgage of $250,000. What is Kara’s LTV? 250000/ 475000 = 52.6% 2. Tamana’s existing mortgage has a balance owing of $350,000. Tamana’s property is worth $700,000 and her original mortgage amount was $490,000. Tamana is allowed to make a prepayment of 10% on her mortgage without paying a penalty. Provided that she has not made any payments this year, what is Tamana’s prepayment privilege? 10% of 490,000 = $49,000 3. What is the difference between the Gross Debt Service ratio and Total Debt Service Ratio? TDSR includes debt 4. Gabi’s mortgage has come up for renewal and she is debating whether to renew her mortgage into a 5 year fixed or variable rate. The current 5-year fixed rate is 3% and the 5 year variable rate is 2.2%. Gabi works as a successful accountant with a strong income and can meet all of her financial obligations with ease. In addition, you noticed that she has free cash flow of $2500 at the end of each month. Gabi is looking for the best possible rate and doesn’t believe we’re in an environment where interest rates will go up anytime soon. Gabi has come to you to help her make up her mind, would you suggest Gabi to renew at the fixed or variable rate? Variable 5. Dora would like to purchase a house that has a purchase price of $400,000 How much money does she have to provide to meet her minimum down payment requirement? $20,000 6. Alex is a first-time home buyer; she has $50,000 in her RRSP invested in a Managed Growth Portfolio. How much can Alex withdraw tax-free from her RRSP under the first- time home buyer plan to use towards her down payment? 35,000 7. What is the difference between a Guarantor and a Co-signer? Cosigner is responsible for pmt, guarantor is usually necessary when primary borrower has unsatisfactory credit. 8. After observing your credit report, you notice an R1 next to your Line of Credit and an M1 next to your mortgage – what does this mean? No late payments 9. Rosalie needs $1,700,000 in her RRSP by the time she turns 65 to fully fund her retirement. If she is currently 30 years old and has $90,000 invested in her RRSP, how much money does she have to save from each of her bi-weekly pay cheques if her investment is expected to earn 7% per year after fees and compounds monthly? P/Y = 26
C/Y = 12 N = 35 X 26 = 910 I/Y = 7 PV = -90,000 PMT = ? 170 FV 1,700,000 10. Mike is new to Canada and has no established credit history. What product should Mike apply for to help build and establish his credit history in Canada? CREDIT CARD!
Week 12 – Exam Practice Questions I have made some additional practice questions to help prepare you for the final exam. We will take these questions up in class. 1. Kim owns her own home. It is currently worth $600,000. Her current outstanding mortgage balance is $420,000 and is secured by a conventional mortgage. What is the maximum amount of money that Kim could borrow if she refinanced her mortgage? 80% of 600,000 = $480,000 - $420,000 = $60,000 2. How much are the weekly payments for a four-year, $40,000 loan that charges interest of 6%, compounded monthly? P/Y = 52, C/Y = 12, N = 208, PV = 40,000, I/Y = 6, FV = 0.. CPT PMT = 216.37 3. What is the monthly lease cost over 60 months for a vehicle that has a total cost of $45,000 if the lease charges 3% interest, interest compounds monthly, and the vehicle has a residual value of $22,000 at the end of the lease? P/Y = 12, C/Y = 12, N = 60, I/Y = 3, PV= -45000, FV = 22,000.. CPT PMT = 468.28.. 4. Olivia has purchased a property in Toronto for $650,000 and has put down $160,000 as a down payment. What is Olivia’s LTV? 650,000 – 160,000 = 490,000/650,000 LTV = 75.38% 5. Ashley earned a net nominal rate of return of 6.8% last year on her investment portfolio. If inflation was 2%, what was her real rate of return? ( 1+6.8%/1+2%) – 1) X 100 = 4.7% 6. Massimo needs $2,000,000 in his RRSP by the time he turns 65 to fully fund his retirement. If he is currently 30 years old and has $80,000 invested in his RRSP, how much money does he have to save from each of his bi-weekly pay cheques if his investment is expected to earn 7% per year after fees and compounds monthly? P/Y = 26, C/Y = 12, I/Y = 7%, N = 910, PV = -80,000, FV = 2,000,000 … PMT? 276.20 7. Beverley recently graduated from college and would like to purchase her first home. She has found a property worth $420,000. She has saved $95,000 as a down payment and expects her closing costs to be 3%. How much will Beverley's mortgage balance be when she purchases the house? 420,000 X 3% = 12,600, 432,600 – 95,000 MTG = 337,600 8. Kim and Kyle are applying for a $25,000 loan to purchase a car. The five-year loan will charge 4% interest (compounded monthly). They own their condo and monthly payments include their mortgage of $1,700, their condo fees of $600, and their heating expense of $100. Their property taxes are $6,000 per year. Kim and Kyle earn gross salaries of $80,000 and $70,000 each year respectively. What is their Gross Debt Service Ratio? GDSR= 1700 + 300 + 100 + 500/12,500 = 20.8%
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
9. Mike and Jessica have decided to buy a property in the Greater Toronto Area for 1.4 million dollars. What is the minimum down payment required? 20% x 1,400,000 = 280k 10. Luke has decided to buy a property outside of Toronto for $450,000. What is the minimum down payment required? 450,000 x 5% = 22,500 11. Allison has $50,000 invested in her TFSA and expects to earn a return of 6% compounded annually, what will her investment be worth in 8 years? P/Y = 1, C/Y= 1, PV = -50,000, I/Y = 6%, PMT = 0, N = 8.. FV? 79,692.40 12. If Ali invests $500 from his weekly pay cheque for the next 20 years, how much money will he have in his account if he expects to earn a return of 5%, compounded annually? P/Y = 52, C/Y = 1, N = 1040, PMT = -500, PV = 0, I/Y = 5 .. CPT FV? = $880,619.65 13. Karen’s condo is worth $600,000. She owes $320,000 on her 6% fixed-rate mortgage which compounds semiannually that has three years remaining in its term. Karen pays $2,300 per month towards it. What is the amortization of the current mortgage? P/Y = 12, C/Y = 2, PV = 320,000, PMT = -2300, I/Y = 6% , FV = 0 ..CPT N? 236.
More Exam Review Questions! 1. What credit facility would be suitable as an emergency reserve? Line of credit 2. What is the maximum LTV for a conventional mortgage? 80% 3. At which frequency do mortgages typically compound? Semi-annually 4. What is longevity risk? Outliving your assets 5. Ursula would like to purchase a house that has a purchase price of $650,000 How much money does she have to provide to meet her minimum down payment requirement? 500,000 x .05 = 25,000 + 150,000 x 10% = 15,000 = 40,000 The minimum down payment (in Canada depends on the purchase price of the home: If the purchase price is less than $500,000, the minimum down payment is 5%. If the purchase price is between $500,000 and $999,999, the minimum down payment is 5% of the first $500,000, and 10% of any amount over $500,000. If the purchase price is $1,000,000 or more, the minimum down payment is 20%.) 6. Bianca earned a net nominal rate of return of 7% last year on her investment portfolio. If inflation was 3%, what was her real rate of return? 1.07 / 1.03 – 1 =.0388 x 100 = 3.88% 7. Sia and Sergio are applying for a $35,000 unsecured line of credit have for emergency purposes. Their monthly payments include their mortgage of $ 1900 , their condo fees of $ 300 , and their heating expense of $ 100 . Their property taxes are $ 6000 per year. Sergio has a student loan that he pays $500 per month towards. Sia and Sergio earn annual gross salaries of $ 70,000 and $ 130,000 , respectively. What is the couple's GDSR? 1900 + 150 + 100 + 500 = 2650, 16,667 … 2650/16667 = 15.9% .. GDSR is less than 32%, looks good! 8. What rate of return do you need to earn to retire with $900,000 in 20 years if you invest $900 per month, compounded quarterly? P/Y = 12, C/Y = 4, FV = 900,000, PV = 0, PMT -900, N = 240, I/Y ? 12.2%
Week 12 – Exam Practice Questions I have made some additional practice questions to help prepare you for the final exam. We will take these questions up in class. 1. Kim owns her own home. It is currently worth $600,000. Her current outstanding mortgage balance is $420,000 and is secured by a conventional mortgage. What is the maximum amount of money that Kim could borrow if she refinanced her mortgage? 80% of 600,000 = $480,000 - $420,000 = $60,000 2. How much are the weekly payments for a four-year, $40,000 loan that charges interest of 6%, compounded monthly? P/Y = 52, C/Y = 12, N = 208, PV = 40,000, I/Y = 6, FV = 0.. CPT PMT = 216.37 3. What is the monthly lease cost over 60 months for a vehicle that has a total cost of $45,000 if the lease charges 3% interest, interest compounds monthly, and the vehicle has a residual value of $22,000 at the end of the lease? P/Y = 12, C/Y = 12, N = 60, I/Y = 3, PV= -45000, FV = 22,000.. CPT PMT = 468.28.. 4. Olivia has purchased a property in Toronto for $650,000 and has put down $160,000 as a down payment. What is Olivia’s LTV? 650,000 – 160,000 = 490,000/650,000 LTV = 75.38% 5. Ashley earned a net nominal rate of return of 6.8% last year on her investment portfolio. If inflation was 2%, what was her real rate of return? ( 1+6.8%/1+2%) – 1) X 100 = 4.7% 6. Massimo needs $2,000,000 in his RRSP by the time he turns 65 to fully fund his retirement. If he is currently 30 years old and has $80,000 invested in his RRSP, how much money does he have to save from each of his bi-weekly pay cheques if his investment is expected to earn 7% per year after fees and compounds monthly? P/Y = 26, C/Y = 12, I/Y = 7%, N = 910, PV = -80,000, FV = 2,000,000 … PMT? 276.20 7. Beverley recently graduated from college and would like to purchase her first home. She has found a property worth $420,000. She has saved $95,000 as a down payment and expects her closing costs to be 3%. How much will Beverley's mortgage balance be when she purchases the house? 420,000 X 3% = 12,600, 432,600 – 95,000 MTG = 337,600 8. Kim and Kyle are applying for a $25,000 loan to purchase a car. The five-year loan will charge 4% interest (compounded monthly). They own their condo and monthly payments include their mortgage of $1,700, their condo fees of $600, and their heating expense of $100. Their property taxes are $6,000 per year. Kim and Kyle earn gross salaries of $80,000 and $70,000 each year respectively. What is their Gross Debt Service Ratio? GDSR= 1700 + 300 + 100 + 500/12,500 = 20.8%
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
9. Mike and Jessica have decided to buy a property in the Greater Toronto Area for 1.4 million dollars. What is the minimum down payment required? 20% x 1,400,000 = 280k 10. Luke has decided to buy a property outside of Toronto for $450,000. What is the minimum down payment required? 450,000 x 5% = 22,500 11. Allison has $50,000 invested in her TFSA and expects to earn a return of 6% compounded annually, what will her investment be worth in 8 years? P/Y = 1, C/Y= 1, PV = -50,000, I/Y = 6%, PMT = 0, N = 8.. FV? 79,692.40 12. If Ali invests $500 from his weekly pay cheque for the next 20 years, how much money will he have in his account if he expects to earn a return of 5%, compounded annually? P/Y = 52, C/Y = 1, N = 1040, PMT = -500, PV = 0, I/Y = 5 .. CPT FV? = $880,619.65 13. Karen’s condo is worth $600,000. She owes $320,000 on her 6% fixed-rate mortgage which compounds semiannually that has three years remaining in its term. Karen pays $2,300 per month towards it. What is the amortization of the current mortgage? P/Y = 12, C/Y = 2, PV = 320,000, PMT = -2300, I/Y = 6% , FV = 0 ..CPT N? 236.
1. Jordanna and has been saving to purchase her first home. The conditional offer of purchase shows an agreed-upon purchase price of $300,000. She has saved $20,000 in her Tax-Free Savings Account (TFSA) and her parents will provide her with a gift of an additional $20,000. How much of a mortgage will Jordanna require? 2. Mac and Sam have decided they need a larger home. They have found a house they would like to purchase, with an asking price is $700,000. They have cash savings of $40,000 to put towards their down payment. They also plan to sell their existing property for $475,000 and use the net proceeds of the sale, after paying their mortgage of $150,000 and the realtor’s fees, as part of their down payment for the new house. How much of a mortgage will Mac and Sam require? 3. Raees has found a house he would like to purchase, with an asking price is $500,000. He has cash savings of $60,000 to put towards his down payment. He also plans to sell his existing property for $335,000 and use the net proceeds of the sale, after paying his mortgage of $100,000 and the realtor’s fees of 6%, as part of his down payment for the new house. How much of a mortgage will Raees require? 4. Shavone is purchasing her first home in Ontario. The conditional offer has a purchase price of $400,000. She will use a total of $60,000 from her TFSA as her down payment. How much of a mortgage will Shavone require? 5. Monica is purchasing her first home in Manitoba. The conditional offer has a purchase price of $300,000. She will use a total of $50,000 from her a gift from her aunt as her down payment. How much of a mortgage will Monica require?
Loan-To-Value Practice Answers 1 Funds Required Mortgage Default Insurance Purchase Price $ 300,000 Total Amount Being Borrowed $ 272,000 Plus Closing Costs $ 12,000 X Insurance Premium Rate 4% Total Funds Required $ 312,000 Mortgage Default Insurance $ 10,880 Down Payment Mortgage Default Insurance $ 10,880 Cash X Provincial Sales Tax (***) Investments $ 20,000 $ 10,880 RRSP's Total Mortgage Amount Gifts $ 20,000 Total amount Borrowed $ 272,000 Sale of Existing Property (**) + Mortgage Default Insurance $ 10,880 Other Financing Total Mortgage Amount $ 282,880 Total Down payment Available $ 40,000 Total Amount Being Borrowed Total Funds Required $ 312,000 * Estimate 4% of purchase price for closing costs Total Down payment available $ 40,000 ** Estimate 6% of exiting property sale price for realtor commissions Total amount borrowed $ 272,000 *** Charged in Manitoba, Ontario, Saskatchewan and Quebec Loan-to-value (LTV) Total Amount Being Borrowed $ 272,000 Purchase price $ 300,000 Total Loan-to-Value (LTV) 91%
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
2 Funds Required Mortgage Default Insurance Purchase Price $ 700,000 Total Amount Being Borrowed Plus Closing Costs $ 28,000 X Insurance Premium Rate Total Funds Required $ 728,000 Mortgage Default Insurance Down Payment Mortgage Default Insurance Cash $ 40,000 X Provincial Sales Tax (***) Investments RRSP's Total Mortgage Amount Gifts Total amount Borrowed Sale of Existing Property (**) $ 278,500 + Mortgage Default Insurance Other Financing Total Mortgage Amount Total Down payment Available $ 318,500 Total Amount Being Borrowed Total Funds Required $ 728,000 * Estimate 4% of purchase price for closing costs Total Down payment available $ 318,500 ** Estimate 6% of exiting property sale price for realtor commissions Total amount borrowed $ 409,500 *** Charged in Manitoba, Ontario, Saskatchewan and Quebec Loan-to-value (LTV) Total Amount Being Borrowed $ 409,500 Purchase price $ 700,000 Total Loan-to-Value (LTV) 59%
3 Funds Required Mortgage Default Insurance Purchase Price $ 500,000 Total Amount Being Borrowed Plus Closing Costs $ 20,000 X Insurance Premium Rate Total Funds Required $ 520,000 Mortgage Default Insurance Down Payment Mortgage Default Insurance Cash X Provincial Sales Tax (***) Investments $ 60,000 RRSP's Total Mortgage Amount Gifts Total amount Borrowed Sale of Existing Property (**) $ 214,900 + Mortgage Default Insurance Other Financing Total Mortgage Amount Total Down payment Available $ 274,900 Total Amount Being Borrowed Total Funds Required $ 520,000 * Estimate 4% of purchase price for closing costs Total Down payment available $ 274,900 ** Estimate 6% of exiting property sale price for realtor commissions Total amount borrowed $ 245,100 *** Charged in Manitoba, Ontario, Saskatchewan and Quebec Loan-to-value (LTV) Total Amount Being Borrowed $ 245,100 Purchase price $ 500,000 Total Loan-to-Value (LTV) 49%
4 Funds Required Mortgage Default Insurance Purchase Price $ 400,000 Total Amount Being Borrowed $ 356,000 Plus Closing Costs $ 16,000 X Insurance Premium Rate 3.10% Total Funds Required $ 416,000 Mortgage Default Insurance $ 11,036.00 Down Payment Mortgage Default Insurance $ 11,036.00 Cash X Provincial Sales Tax (***) $ 882.88 Investments $ 60,000 $ 11,918.88 RRSP's Total Mortgage Amount Gifts $ - Total amount Borrowed $ 367,919 Sale of Existing Property (**) + Mortgage Default Insurance $ 11,918.88 Other Financing Total Mortgage Amount $ 379,838 Total Down payment Available $ 60,000 Total Amount Being Borrowed Total Funds Required $ 416,000 * Estimate 4% of purchase price for closing costs Total Down payment available $ 60,000 ** Estimate 6% of exiting property sale price for realtor commissions Total amount borrowed $ 356,000 *** Charged in Manitoba, Ontario, Saskatchewan and Quebec 8% Loan-to-value (LTV) Total Amount Being Borrowed $ 356,000 Purchase price $ 400,000 Total Loan-to-Value (LTV) 89% 5
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Funds Required Mortgage Default Insurance Purchase Price $ 300,000 Total Amount Being Borrowed $ 262,000 Plus Closing Costs $ 12,000 X Insurance Premium Rate 3.10% Total Funds Required $ 312,000 Mortgage Default Insurance $ 8,122.00 Down Payment Mortgage Default Insurance $ 8,122.00 Cash X Provincial Sales Tax (***) $ 649.76 Investments $ 8,771.76 RRSP's Total Mortgage Amount Gifts $ 50,000 Total amount Borrowed $ 262,000 Sale of Existing Property (**) + Mortgage Default Insurance $ 8,771.76 Other Financing Total Mortgage Amount $ 270,772 Total Down payment Available $ 50,000 Total Amount Being Borrowed Total Funds Required $ 312,000 * Estimate 4% of purchase price for closing costs Total Down payment available $ 50,000 ** Estimate 6% of exiting property sale price for realtor commissions Total amount borrowed $ 262,000 *** Charged in Manitoba, Ontario, Saskatchewan and Quebec Loan-to-value (LTV) Total Amount Being Borrowed $ 262,000 Purchase price $ 300,000 Total Loan-to-Value (LTV) 87%
Debt Consolidation Practice Case (Answers Included) Please refer to the week 9 slides for additional guidance. This case is great practice for the Mortgage Assignment which will be due in week 12. Leslie’s condo is worth $500,000. She owes $300,000 on her 6% fixed-rate mortgage which compounds semiannually that has three years remaining in its term. Leslie pays $2,200 per month towards it. She also has the following debts: l $22,000 unsecured line of credit at 7% with a monthly payment of $700. l $20,000 on a student loan at 7%, with a monthly payment of $200. l $16,000 credit card at 20% with a monthly payment of $280. She has already used up her prepayment privileges for the year. She can get a new mortgage at 3% or add funds to her existing mortgage at a rate of 4%. Samara has a conventional mortgage charge against her property. Her lender charges $300 to discharge any mortgage and $500 to set up new legal documents for any mortgage. 1. Find the amortization of the current mortgage. 227 months 2. Find the prepayment penalty for the current mortgage. Calculate both penalty options. Three-Months Interest? $4500 Interest Rate Differential? $27,000 3. Find the total amount for the New Mortgage Amount? $385,800 4. Find the payment if the penalty is paid and a new mortgage is set up? $2,225.70 5. Find the New Mortgage amount if the mortgage is blended and extended? $358,800 6. Find the interest rate if the mortgage is blended and extended? 5.6722% 7. Find the payment if the mortgage is blended and extended? $2,567.56 8. Determine the total current monthly debt costs? $3,380.00 9. Find the total cost savings per month with the lowest Rate? $1,154.30
Debt Consolidation Practice Case (Answers Included) Please refer to the week 9 slides for additional guidance. This case is great practice for the Mortgage Assignment which will be due in week 12. Leslie’s condo is worth $500,000. She owes $300,000 on her 6% fixed-rate mortgage which compounds semiannually that has three years remaining in its term. Leslie pays $2,200 per month towards it. She also has the following debts: l $22,000 unsecured line of credit at 7% with a monthly payment of $700. l $20,000 on a student loan at 7%, with a monthly payment of $200. l $16,000 credit card at 20% with a monthly payment of $280. She has already used up her prepayment privileges for the year. She can get a new mortgage at 3% or add funds to her existing mortgage at a rate of 4%. Samara has a conventional mortgage charge against her property. Her lender charges $300 to discharge any mortgage and $500 to set up new legal documents for any mortgage. 1. Find the amortization of the current mortgage. 227 months 2. Find the prepayment penalty for the current mortgage. Calculate both penalty options. Three-Months Interest? $4500 Interest Rate Differential? $27,000 3. Find the total amount for the New Mortgage Amount? $385,800 4. Find the payment if the penalty is paid and a new mortgage is set up? $2,225.70 5. Find the New Mortgage amount if the mortgage is blended and extended? $358,800 6. Find the interest rate if the mortgage is blended and extended? 5.6722% 7. Find the payment if the mortgage is blended and extended? $2,567.56 8. Determine the total current monthly debt costs? $3,380.00 9. Find the total cost savings per month with the lowest Rate? $1,154.30
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Week 13 Practice Questions 1. What is the lifetime maximum CESG for a beneficiary? Does this limit change if the RESP is set up as a family plan? $7200 and no. 2. Siena and Joseph have opened a RESP for their daughter Lizzie. Lizzie is 2 years old, and they have made a contribution of $2000 for this year. The family net income is $160,000. What will be paid as a CESG for this year’s RESP contribution? $400 3. What amount would Siena and Joseph need to contribute to get the maximum CESG possible? $2500 4. The CESG is paid to an RESP beneficiary until they reach which age? 17 5. What is the maximum that can be contributed to an RESP? $50,000 6. What is the maximum that can be contributed to an RDSP? $200,000 7. Are contributions to an RDSP tax deductible? No 8. RDSP Beneficiaries under age 49 have access to the Canada Disability Savings Grant (CDSG). What is the maximum CDSG that is paid annually to a beneficiary? What is the CDSG lifetime maximum limit? $ 3500, $70,000
Week 12 Practice Questions 1. Malcolm has RRIF that required him to make a minimum withdrawal of $8,500. He has elected to withdraw $22,000 instead to help his granddaughter with a deposit on her first house. Calculate Malcom’s withholding tax on the transaction. The first $8,500 is not subject to withholding taxes however the next $13,500 is subject to withholding taxes at 20%. Malcolm would incur withholding taxes of $2,700 (13,500 x 20%) on the $22,000 withdrawal from his RRIF. 2. Sarah has a required minimum LIF payment of $5,500 for the year. She elected to withdrawal $7,000 to help address her gaps in her cash flow. Calculate her withholding taxes assuming she lives in Ontario. $7000 - $5500 = 1500 x 10% = $150 3. How is a LIF funded? A LIF is funded from accumulated savings that were held in a locked in RRSP or Locked in Retirement Account (LIRA) 4. How is investment growth within a LIF taxed? Funds in a LIF grow tax deferred. When a payment is made out of the LIF it is considered taxable income to the recipient. 5. Susan left her employer in Toronto as she found a better opportunity at a FinTech. She has $150,000 sitting in the company pension plan and would like to transfer her pension out and manage the funds herself. Which account would Susan need to open? LIRA
Practice Questions 1. Who contributes to a DPSP? Employer 2. What are the advantages to a DPSP? Tax sheltered growth, increased motivation among employees, flexibility to withdraw vested amounts 3. What is the DPSP contributory limits? The maximum deductible limit is the lesser of: 18% of the employee’s compensation for the year One-half of the money purchase limit for the year 4. Who is entitled to the tax deduction for a DPSP? Employer 5. How is an EFA similar to a TFSA? Tax sheltered growth 6. What are the EFA contribution limits? $15,000, where the arrangement covers only funeral services (described below) for the individual $20,000, where the arrangement covers only cemetery services (described below) for the individual $35,000, where the arrangement covers both funeral services and cemetery services for the individual 7. What is a benefit that an EFA provides? Opportunity to lock in funeral arrangement costs.
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Practice Questions/Quiz Review 1. In September, Lynne transferred a total of $70,000 directly from her RRSP held at CIBC to a new RRSP held with a Scotiabank. What are Lynne’s tax consequences for this transfer? 0 2. Beverley was 65 as of January 1 st 2022. Her RRIF was established in 2020. On January 1, 2020, Beverley’s RRIF contained assets valued at $470,000. Based on Beverley’s age, what is the minimum withdrawal that she must make from her RRIF? 90 – 65 = 25 years, 470,000 / 25 =18,800 3. If Mike has an LLP balance of $18,000, what will his annual repayment be? 18000 / 10 = 1800 4. Ali contributes the annual maximum to his TFSA each year on January 1. In May 2019, Ali withdrew $10,000. When will his withdrawal be available as contribution room? Jan 1 st 2020 5. Jackie returned to school full-time to participate in a qualified program at a qualified institution. She plans to access funds from her RRSP under the LLP to assist with her financial responsibilities. What is Jackie’s annual LLP limit? $10,000 6. Alexis, who is married to Joe has total RRSP contribution room of $8,000. In March, she decided to use the full $8,000 as a contribution to a spousal RRSP where Joe is the annuitant. For this spousal RRSP, Alexis is the contributing spouse and Joe is the plan annuitant. Who gets the tax deduction? Alexis What happens to Alexis’ contribution room? Reduced What happens to Joe’s contribution room? unchanged 7. In March 2016, Mario made a $5,000 contribution to a spousal RRSP where Winnie is the annuitant. In December 2017, he made another $5,000 contribution to the spousal RRSP. No further contributions have been made. In December 2017, Winnie withdrew $5,000 from the spousal RRSP. How will attribution rules effect this situation? Mario will be taxed 8. Ashley, who was age 78 at the beginning of 2019, owns a RRIF that was first established in 2005. On January 1, 2019, the market value of assets in Ashley’s RRIF was $198,000. What is the minimum withdrawal that Ashley must make from her RRIF based on the CRA prescribed rate of 6.36% for an individual aged 78? 198000 x .0636 = 12592.80 9. Omar, who was age 74 at the beginning of 2019, owns a RRIF that was first established in 2015. On January 1, 2019, the market value of assets of Omar’s RRIF was $220,000. What is the minimum withdrawal that Omar must make from his RRIF based on the CRA prescribed rate of 5.67% for an individual aged 74? 220000 x .0567 = 12474
10. What is the difference between a single life annuity and a guaranteed life annuity? 11. Edith purchased a non-registered annuity with $250,000 of capital. The life annuity with no guarantee period will pay Edith a monthly income of $1,649.69, beginning one month after purchase. If Edith has a life expectancy of 19.69 years, and she opts for prescribed tax treatment on the funds, what amount of the monthly payment is taxable? Step One: Capital Element The adjusted purchase price is $250,000, an amount equal to the premium paid for the annuity. Step Two: Number of Annuity Payments The annuity is expected to make 236.28 payments based on 19.69 years of life expectancy multiplied by 12 payments per year. Step Three: Capital Proportion of Each Payment The capital proportion of each payment is $1,056.28, derived as: $250,000 ÷ (236.28 x $1,649.69) = $250,000 ÷ $389,788.75 = 64.14% Step Four: Capital Element of Each Payment The capital element of each payment is $1,058.11, derived as: $1,649.69 x 64.14% = $1,058.11 Conclusion We know that $1,058.11 of each annuity payment is capital; therefore, $591.58 ($1,649.69 − $1,058.11) of each annuity payment is interest. The annuitant will report the interest portion of the annuity payment as income.
Practice Questions/Quiz Review 1. In September, Lynne transferred a total of $70,000 directly from her RRSP held at CIBC to a new RRSP held with a Scotiabank. What are Lynne’s tax consequences for this transfer? 2. Beverley was 65 as of January 1 st 2022. Her RRIF was established in 2020. On January 1, 2020, Beverley’s RRIF contained assets valued at $470,000. Based on Beverley’s age, what is the minimum withdrawal that she must make from her RRIF? 3. If Mike has an LLP balance of $18,000, what will his annual repayment be? 4. Ali contributes the annual maximum to his TFSA each year on January 1. In May 2019, Ali withdrew $10,000. When will his withdrawal be available as contribution room? 5. Jackie returned to school full-time to participate in a qualified program at a qualified institution. She plans to access funds from her RRSP under the LLP to assist with her financial responsibilities. What is Jackie’s annual LLP limit? 6. Alexis, who is married to Joe has total RRSP contribution room of $8,000. In March, she decided to use the full $8,000 as a contribution to a spousal RRSP where Joe is the annuitant. For this spousal RRSP, Alexis is the contributing spouse and Joe is the plan annuitant. Who gets the tax deduction? What happens to Alexis’ contribution room? What happens to Joe’s contribution room? 7. In March 2016, Mario made a $5,000 contribution to a spousal RRSP where Winnie is the annuitant. In December 2017, he made another $5,000 contribution to the spousal RRSP. No further contributions have been made. In December 2017, Winnie withdrew $5,000 from the spousal RRSP. How will attribution rules effect this situation? 8. Ashley, who was age 78 at the beginning of 2019, owns a RRIF that was first established in 2005. On January 1, 2019, the market value of assets in Ashley’s RRIF was $198,000. What is the minimum withdrawal that Ashley must make from her RRIF based on the CRA prescribed rate of 6.36% for an individual aged 78? 9. Omar, who was age 74 at the beginning of 2019, owns a RRIF that was first established in 2015. On January 1, 2019, the market value of assets of Omar’s RRIF was $220,000. What is the minimum withdrawal that Omar must make from his RRIF based on the CRA prescribed rate of 5.67% for an individual aged 74? 10. What is the difference between a single life annuity and a guaranteed life annuity? 11. Edith purchased a non-registered annuity with $250,000 of capital. The life annuity with no guarantee period will pay Edith a monthly income of $1,649.69, beginning one
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
month after purchase. If Edith has a life expectancy of 19.69 years, and she opts for prescribed tax treatment on the funds, what amount of the monthly payment is taxable? Step One: Capital Element The adjusted purchase price is $250,000, an amount equal to the premium paid for the annuity. Step Two: Number of Annuity Payments The annuity is expected to make 236.28 payments based on 19.69 years of life expectancy multiplied by 12 payments per year. Step Three: Capital Proportion of Each Payment The capital proportion of each payment is $1,056.28, derived as: $250,000 ÷ (236.28 x $1,649.69) = $250,000 ÷ $389,788.75 = 64.14% Step Four: Capital Element of Each Payment The capital element of each payment is $1,058.11, derived as: $1,649.69 x 64.14% = $1,058.11 Conclusion We know that $1,058.11 of each annuity payment is capital; therefore, $591.58 ($1,649.69 − $1,058.11) of each annuity payment is interest. The annuitant will report the interest portion of the annuity payment as income.
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Week 9 – Practice Questions 1. Lucy returned to school full-time to participate in a qualified program at a qualified institution. She plans to access funds from her RRSP under the LLP to assist with her financial responsibilities. What is Lucy’s annual LLP limit she can withdraw? $10,000 2. In September 2015, Mike returned to school full-time and met all of the conditions required to participate in the LLP. On October 1, 2015, he made his first LLP withdrawal of $10,000. Still a full-time student, on October 1, 2016, he made a second withdrawal of $10,000, which caused him to reach his total LLP limit. Although Mike did not have any additional LLP withdrawals available to him, he continued in school full-time until April 2019, when he graduated. When will Mike’s repayment begin? 2020 3. Based on question 3, if Mike has an LLP balance of $20,000 – what will his annual payment be? $2000 4. In September, Maria transferred a total of $90,000 directly from her RRSP held at a local bank to a new RRSP held with a life insurance company. What are Maria’s tax consequences for this transfer? No tax consequence as this is a direct transfer to an eligible account. 5. Ian began employment with IM Best Technologies on January 1, 1977 and worked there until he retired in December 2018. IM Best implemented an RPP effective January 1, 1983, and Ian joined immediately. At retirement, Ian was fully vested in the company pension plan. In December 2018, IM Best Technologies paid Ian a $100,000 retiring allowance. How much can Ian roll into his RRSP? $2,000 x the number of years that Ian was employed with IM Best, prior to 1996 Years employed at IM Best prior to 1996 (1977 to 1995, inclusive) Part 1 of formula: = (1995 − 1977 + 1) = 19 years = $2,000 x 19 years = $38,000 Part 2 of formula: $1,500 x the number of years of employment, prior to 1989, during which Ian was not a vested member of IM Best’s pension plan. Years employed at IM Best while not a vested member of the company pension plan, prior to 1989 (1977 to 1982, inclusive) = (1982 − 1977 + 1) = 6 years x $1500 - $9000
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Total amount that can be rolled into RRSP = $38,000 + $9000 = $47,000 6. Gail was born on January 15, 1948. Her RRIF was established in 2013. On January 1, 2019, Gail’s RRIF contained assets valued at $275,000. Based on Gail’s age, what is the minimum withdrawal that Gail must make from her RRIF? This is derived as follows: Age at January 1, 2019 = 70 Minimum payment = (market value of plan assets on January 1) ÷ (90 − age) = $275,000 ÷ (90 − 70) = $275,000 ÷ 20 = $13,750 7. Vivian was 60 as of January 1 st 2020. Her RRIF was established in 2015. On January 1, 2020, Vivian’s RRIF contained assets valued at $390,000 Based on Vivian’s age, what is the minimum withdrawal that she must make from her RRIF? ($390,000) ÷ (90 – 60) = $13,000
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Semester Review Presentation
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
WHAT IS FINANCIAL PLANNING: THE DEFINITION 2 Canadian Financial Planning Definitions, Standards and Competencies FPSC & IQPF
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
DETERMINING IF AN INDIVIDUAL CAN ACHIEVE THEIR GOALS 3 Determine if an individual is able to save enough money to achieve their goals. Calculate the amount of money an individual needs to save/invest to achieve their goals. Calculate the rate of return an individual can expect to earn on their savings/investments. Calculate how much money they can save/invest toward their goals. Identify an individual’s goals.
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
SMART GOALS Time-Framed Realistic Achievable Measurable Specific
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
EXAMPLES OF SMART GOALS 1. Be debt free in ten years. 2. Buy a house in five years with a down payment of $100,000. 3. Retire in 30 years with an annual after-tax income of $70,000 (in today’s dollars). 4. Fund four years of annual education costs of $10,000 (in today’s dollars), starting in ten years. 5. Maintain annual after-tax income of $60,000 in the event of the individual becoming disabled. 6. Bequeathing $100,000 to charity in the event of the individual’s death.
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
ASSET CLASS RETURN AND RISK EXPECTATIONS
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
CALCULATING THE EXPECTED NET NOMINAL RETURN ON A PORTFOL - PRACTICE Tam has $100,000 invested in his Tax-Free Savings Account (TFSA). You have determined that the following asset allocation is suitable for his investment portfolio: • 25% Canadian Equities • 25% United States Equities • 20% Foreign Developed Market Equities • 10% Foreign Emerging Market Equities • 20% Fixed Income Assets What nominal rate of return and real rate of return might Tam expect to earn on these investments after fees if he expects to pay investment management fees of 1%?
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
CALCULATING THE EXPECTED NET NOMINAL RETURN ON A PORTFOL – SOLUTION Tam has $100,000 invested in his Tax-Free Savings Account (TFSA). You have determined that the following asset allocation is suitable for his investment portfolio: • 25% Canadian Equities • 25% United States Equities • 20% Foreign Developed Market Equities • 10% Foreign Emerging Market Equities • 20% Fixed Income Assets What nominal rate of return and real rate of return might Tam expect to earn on these investments after fees if he expects to pay investment management fees of 1%? E(NRR) = 0.25(6.2) + 0.25(6.6) +0.20(6.6) + 0.10(7.8) + 0.20(2.7) – 1 = 5.38% E(RRR) = [(1 + 0.0538) ÷ (1 + 0.02) - 1] x 100 = 3.3137%
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
CALCULATING THE EXPECTED NET NOMINAL RETURN ON A PORTFOL – SOLUTION Tam has $100,000 invested in his Tax-Free Savings Account (TFSA). You have determined that the following asset allocation is suitable for his investment portfolio: • 25% Canadian Equities • 25% United States Equities • 20% Foreign Developed Market Equities • 10% Foreign Emerging Market Equities • 20% Fixed Income Assets What nominal rate of return and real rate of return might Tam expect to earn on these investments after fees if he expects to pay investment management fees of 1%? E(NRR) = 0.25(6.2) + 0.25(6.6) +0.20(6.6) + 0.10(7.8) + 0.20(2.7) – 1 = 5.38% E(RRR) = [(1 + 0.04695) ÷ (1 + 0.02) - 1] x 100 = 3.3137 %
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
CHARACTERISTICS OF CREDIT
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
• Installment vs. Revolving • Unsecured vs. Secured • Open vs. Closed • Variable Interest Rate vs. Fixed Interest Rate CHARACTERISTIC SETS FOR CREDIT
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
TERMS OF CREDIT
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
TERMS OF CREDIT Term of Credit Definition Time Value of Money Symbol Principal The amount originally borrowed or the current amount owing on the debt. PV Interest Rate The rate charged to borrow the funds. I/Y Compounding Frequency The number of times that the interest rate is applied to the outstanding debt. C/Y Payment The amount that must be paid each period. PMT Payment Frequency The number of payments that must be made. P/Y Maturity Value The amount of money owing at a future point in time. FV Amortization The length of time until the debt is fully repaid. N Term The length of time the current terms of credit will remain in effect. Covenants The actions the borrower agrees to undertake or refrain from taking while the debt remains outstanding.
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
The amount of interest payable (by the borrower to the lender) as a percentage of the amount borrowed. One of the most important factors in a credit agreement because it has such a significant impact on the cost of borrowing. INTEREST RATE
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
The risk of providing credit. LENDING RISK
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Three main types: 1.Interest-only 2.Blended 3.Lump-sum PAYMENTS
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
▪ Toni and Angelo are applying for a $30,000 unsecured line of credit to have for emergency purposes. Their monthly payments include their mortgage of $2,000, their condo fees of $400, and their heating expense of $125. Their property taxes are $4,200 per year. Toni owes $2,000 on a credit card with a credit limit of $20,000, which she intends to pay in full at the end of the month. Angelo has a student loan that he pays $480 per month towards. Toni and Angelo earn gross salaries of $56,000 and $52,000, respectively. ▪ PRACTICE QUESTION
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Exam Review Presentation
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
2 hours on August 14 th @ 8am via Blackboard Combination of calculation questions & MC questions 30 30% of final grade
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
• TYPES OF MORTGAGES USED TO PURCHASE PROPERTY Image source: ChangeMyRate.com
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Purchase Price Minimum Down Payment Required $0 to $499,999.99 5% of the purchase price $500,000.00 to $999,999.99 5% of the first $500,000 and 10% of the amount over $500,000 $1,000,000+ 20% of the purchase price • DOWN PAYMENT REQUIREMENTS Horatio would like to purchase a home worth $800,000. How much of a down payment must he provide to purchase the house? Down Payment Required = ($500,000 x 0.05) + ($800,000 - $500,000) x 0.10 = $25,000 + $30,000 = $55,000 What will his loan-to-value be and what kind of mortgage will he require? LTV = $800,000 - $55,000) ÷ $800,000 = 93.13% ∴ a high-ratio mortgage will be required.
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
• When purchasing a residential property, buyers face a number of closing costs, including: • Land transfer tax/fees • Title insurance premium • Sales tax • Pre-paid property tax and utility bill reimbursements • Legal and administration fees • Closing costs are estimated to be between 1.5% and 4.0% of the property’s purchase price. • When in doubt, be conservative and use 4.0%. CLOSING COSTS
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Debt Consolidation The act of paying off multiple existing debts using the proceeds from another credit product. $ 7,500 $15,000 $40,000 $ 5,000 $12,500
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
4 Cs of Debt Consolidation People tend to be motivated by the following benefits when consolidating debt: 1. Increased cash flow available to meet goals. 2. Reduced cost from a lower interest rate and lower interest cost. 3. Increased convenience from having only one periodic payment.
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Mortgage Refinance May borrow up to 80% of the value of a residential property. Property Value $500,000 X 80% Maximum LTV . X 80% . Maximum Allowable Debt $400,000 - Current Mortgage Balance . - $250,000 Amount of Additional Funds $150,000 Available for Borrowing
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Options for Consolidating Debt Using a Mortgage 1. Get a new mortgage. Payout current mortgage with a new mortgage. Get to reset terms of mortgage (e.g. rate, term amortization, etc.). Prepayment penalty will apply. 2. Refinance the current mortgage. Borrow more money and add it to the current mortgage balance. Retain terms of current mortgage and establish terms for additional money that has been borrowed. No prepayment charge will apply.
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Prepayment Costs When you renegotiate the terms of a mortgage a cost (penalty) is applied by the lender equal to the greater of: Three months interest Interest Rate Differential (IRD) Variable Rate Mortgage Fixed Rate Mortgage Three Months Interest Three Months Interest or Interest Rate Differential, whichever is greatest
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
• 6 C’s OF CREDIT Capacity to Repay Credit History Character Capital Collateral Conditions Assessing the credit worthiness of an individual involves assessing the Six C’s of Credit.
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
• For applicants who rent their principal residence: • GDSR Rent = Rent + ½ Condominium Fees + Heating Expense • Gross Income • For applicants who own their own principal residence: • GDSR Own = Mortgage Payment + Property Taxes + ½ Condominium Fees + Heat • Gross Income • Generally, GDSR should be 32% or less • GROSS DEBT SERVICE RATIO (GDSR)
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
• TDSR = Shelter Costs (as included in GDSR) + Debt Payments • Gross Income • Each lender uses its own guidelines to determine minimum payments on debt obligations. Commonly used ones include: • The actual payment for installment credit facilities • 1% of the credit limit for credit cards • 3% of the credit limit for unsecured lines of credit • 1% of the credit limit for secured lines of credit • Generally, TDSR should be 40% or less • TOTAL DEBT SERVICE RATIO
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
• Lenders review the alphanumeric codes associated with each credit trade to understand the repayment history on the debt. • REVIEWING THE CREDIT TRADE RATINGS R1 Type of Credit Facility Repayment Rating of Credit Facility R= Revolving I = Installment M = Mortgage 1 = Good 2 – 5 = Bad 7 – 9 = Worse
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
• If collateral is required by a lender, but unavailable from the borrower, a co-signor or guarantor may be a viable solution to secure the credit. • ALTERNATIVES TO COLLATERAL Co-Signor Guarantor Income, assets, and credit history used to qualify for loan. Always Responsible for payments. Only in the event that borrower defaults on payments. When applicant’s income cannot support debt. Typically Used When applicant’s credit history does not satisfy lender’s guidelines.
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Reverse mortgage A reverse mortgage is a loan secured against a borrower’s principal residence that requires no regular repayment until the borrower sells the home or dies. Borrowers must be at least 55 years old and own their own home (their primary residence) in Canada, and the home must be worth at least $150,000. What is a reverse mortgage A reverse mortgage is a loan that allows you to get money from your home equity without having to sell your home. This is sometimes called “equity release”. You can borrow up to 55% of the current value of your home. The maximum amount you’re able to borrow will depends on: • your age • your home’s appraised value • your lender You pay back your loan when you move out of your home, sell it or the last borrower dies. This means you don’t need to make any payments on a reverse mortgage until the loan is due. You will owe more interest on a reverse mortgage the longer you go without making payments. At
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
• Installment vs. Revolving • Unsecured vs. Secured • Open vs. Closed • Variable Interest Rate vs. Fixed Interest Rate • CHARACTERISTIC SETS FOR CREDIT
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
• Amount applied for and • approved can only be • borrowed once. • Examples include loans, leases and mortgages. INSTALLMENT CREDIT REVOLVING • CREDIT • Amount applied for and • approved can be borrowed • repeatedly. • Examples include lines of credit and credit cards. • INSTALLMENT CREDIT vs. REVOLVING CREDIT
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
• The borrower expects interest rates to decrease during the term of the debt • The borrower expects the variable interest rate to remain below the fixed interest rate for the majority of the debt’s term • The borrower is comfortable with fluctuating payments and amortization VARIABLE INTEREST RATE CREDIT • FIXED INTEREST RATE CREDIT • The borrower expects interest rates to increase during the term of the debt • The borrower expects the variable interest rate to be above the fixed interest rate for the majority of the debt’s term • The borrower is uncomfortable with fluctuating payments and amortization • SUITABILITY OF VARIABLE INTEREST RATE CREDIT & FIXED INTEREST RATE CREDIT
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Investing is About Risk Vs. Return Model Investing
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Calculating the Expected Net Nominal Return on a Portfolio E(NRR) = ∑ w 1 r 1 + w 2 r 2 +…+ w n r n where w = weight of portfolio invested in asset class r = rate of return of asset class Example: A portfolio that is invested in the following: • 20% Fixed income assets that is expected to earn 4% • 50% Canadian equities that is expected to earn 5% • 30% International equities that is expected to earn 6% Will be expected to earn: E(NRR) = w fi r fi + w ce r ce + w ie r ie = 0.20(4) + 0.50(5) + 0.30(6) = 5.10% If the portfolio charges 1.00% annual fees, then the investor can expect to earn 5.10% - 1.00% = 4.10% each year.
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Calculating the Expected Real rate of Return on a Portfolio E(RRR) = [(1 + NRR) ÷ (1 + Inflation Rate) - 1] x 100 Example: How much return, after inflation, can an individual expect to earn if their portfolio has an expected nominal rate of return of 4.10% and inflation is expected to be 2.00%? E(RRR) = [(1 + NRR) ÷ (1 + Inflation Rate) - 1] x 100 = [(1 + 0.041) ÷ (1 + 0.02) - 1] x 100 = 2.0588%
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Debt Consolidation
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
READINGS Read the following sections of the Advocis Core Curriculum Module 913: Credit and Debt: • Mortgages (Pages 199 to 215) • Debt Repayment (Pages 244 to 255) • Delinquency (Pages 256 to 262) • Insolvency (Pages 263 to 270)
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Debt Consolidation The act of paying off multiple existing debts using the proceeds from another credit product. $ 7,500 $15,000 $40,000 $ 5,000 $12,500
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
4 Cs of Debt Consolidation People tend to be motivated by the following benefits when consolidating debt: 1. Increased cash flow available to meet goals. 2. Reduced cost from a lower interest rate and lower interest cost. 3. Increased convenience from having only one periodic payment.
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
But the Most Motivating Factor is… Comfort and the Peace of Mind that comes with it. Happiness Matters
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Debt Consolidation Example Rodrika has the following debts outstanding: How will it impact her finances if she can consolidate her debts into a five year loan that charges 5% interest, compounded monthly? Debt Outstanding Balance Interest Rate Monthly Payment Car Loan $8,000 7% $247.02 Line of Credit $8,000 6% $271.16 Credit Card $10,000 20% $170.41 Credit Card $4,000 21% $ 73.00
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Debt Consolidation Example Debt Outstanding Balance Interest Rate Monthly Payment Time to Payoff Interest Cost Car Loan $8,000 7% $247.02 Line of Credit $8,000 6% $271.16 Credit Card $10,000 20% $170.41 Credit Card $4,000 21% $ 73.00
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Debt Consolidation Example Debt Outstanding Balance Interest Rate Monthly Payment Time to Payoff Interest Cost Car Loan $8,000 7% $247.02 36 Line of Credit $8,000 6% $271.16 Credit Card $10,000 20% $170.41 Credit Card $4,000 21% $ 73.00 MODE P/Y C/Y I/Y PV PMT FV N END 12 12 7 8,000 -247.02 0 36
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Debt Consolidation Example Debt Outstanding Balance Interest Rate Monthly Payment Time to Payoff Interest Cost Car Loan $8,000 7% $247.02 36 Line of Credit $8,000 6% $271.16 32 Credit Card $10,000 20% $170.41 231 Credit Card $4,000 21% $ 73.00 184
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Debt Consolidation Example Debt Outstanding Balance Interest Rate Monthly Payment Time to Payoff Interest Cost Car Loan $8,000 7% $247.02 36 $892.72 Line of Credit $8,000 6% $271.16 32 $677.12 Credit Card $10,000 20% $170.41 231 Credit Card $4,000 21% $ 73.00 184 Interest cost = Payment Amount x Time to Payoff – Outstanding Balance = $271.16 * 32 = $8,677.12 - $8000.00
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Debt Consolidation Example Debt Outstanding Balance Interest Rate Monthly Payment Time to Payoff Interest Cost Car Loan $8,000 7% $247.02 36 $893 Line of Credit $8,000 6% $271.16 32 $677 Credit Card $10,000 20% $170.41 231 $29,364.71 Credit Card $4,000 21% $ 73.00 184 $9,432 Total $30,000 $761.59 $41,560
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Debt Consolidation Example Debt Outstanding Balance Interest Rate Monthly Payment Time to Payoff Interest Cost Car Loan $8,000 7% $247.02 36 $893 Line of Credit $8,000 6% $271.16 32 $677 Credit Card $10,000 20% $170.41 231 $29,364.71 Credit Card $4,000 21% $ 73.00 184 $9,432 Total $30,000 $761.59 40,366.71 MODE P/Y C/Y N I/Y PV FV PMT END 12 12 60 5 30,000 0 -566.14 Total Interest Cost = $566.14 x 60 - $30,000 = $3,968.40
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Debt Consolidation Example Debt Outstanding Balance Interest Rate Monthly Payment Time to Payoff Interest Cost Car Loan $8,000 7% $247.02 36 $893 Line of Credit $8,000 6% $271.16 32 $677 Credit Card $10,000 20% $170.41 231 $29,364.71 Credit Card $4,000 21% $ 73.00 184 $9,432 Total $30,000 $761.59 $40,366.41 Money Saved Per Month = $761.59 - $566.14 = $195.45 Total Interest Saved = $40,366.41 - $3,968.40 = $36,398.31 Debt paid off in 60 months instead of 238 months.
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Debt Consolidation Practice Kofi had the following debts outstanding. If Kofi can consolidate his debts into a five year loan that charges 6% interest, how much cash flow can he free up which he could then redirect to funding his goals? Debt Outstanding Balance Interest Rate Monthly Payment Student Loan $12,000 7% $150.00 Student Line of Credit $ 8,000 6.5% $200.00 Credit Card $ 6,000 20% $200.00 Credit Card $ 9,000 20% $225.00
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Debt Consolidation Practice Debt Outstanding Balance Interest Rate Monthly Payment Student Loan $12,000 7% $150.00 Student Line of Credit $ 8,000 6.5% $200.00 Credit Card $ 6,000 20% $200.00 Credit Card $ 9,000 20% $225.00 Total $35,000 $775.00 Total Money Saved per Month = $775.00 - $676.65 = $98.35 MODE P/Y C/Y N I/Y PV FV PMT END 12 12 60 6 35,000 0 -676.65
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Debt Consolidation Using Mortgages
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Mortgages Secured instalment loan used to purchase real estate property, such as a house or condominium. May also be used to borrow owner’s equity from the home to pay for higher priced goods and services, such as: Home renovations Education costs Vehicles Commonly used to consolidate debt.
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Mortgage Refinance May borrow up to 80% of the value of a residential property. Property Value $500,000 X 80% Maximum LTV . X 80% . Maximum Allowable Debt $400,000 - Current Mortgage Balance . - $250,000 Amount of Additional Funds $150,000 Available for Borrowing
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Options for Consolidating Debt Using a Mortgage 1. Get a new mortgage. Payout current mortgage with a new mortgage. Get to reset terms of mortgage (e.g. rate, term amortization, etc.). Prepayment penalty will apply. 2. Refinance the current mortgage. Borrow more money and add it to the current mortgage balance. Retain terms of current mortgage and establish terms for additional money that has been borrowed. No prepayment charge will apply.
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Prepayment Costs When you renegotiate the terms of a mortgage a cost (penalty) is applied by the lender equal to the greater of: Three months interest Interest Rate Differential (IRD) Variable Rate Mortgage Fixed Rate Mortgage Three Months Interest Three Months Interest or Interest Rate Differential, whichever is greatest
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Mortgage Prepayments Josiah has a $400,000 mortgage with 36 months remaining in its term. His original mortgage amount at the beginning of his term was $450,000. He locked in a fixed interest rate at that time of 6%. Current rates in the marketplace are 4%. His lender allows him to prepay his mortgage up to 10% in any calendar year without penalty. How much penalty will he face if he pays out his mortgage and has not used any prepayment privileges yet this year?
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Mortgage Prepayments Original Mortgage Amount $450,000 X 10% Prepayment Privilege x 10% Total Prepayment Allowed $ 45,000 Current Mortgage Balance $400,000 - Prepayment Privilege - $ 45,000 Amount That Prepayment $355,000 Penalty Will Be Based On
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Estimating Prepayment Penalties 1. Three Months Interest Mortgage Amount $ 355,000 X Interest Rate X 6% ÷ 12 ÷ 12 X 3 X 3 Estimated Penalty Payable $ 5,325 2. Interest Rate Differential Mortgage Amount $ 355,000 X Difference in Interest Rates X 6% - 4% ÷ 12 ÷ 12 X Number of Months Remaining in Term X 36 Estimated Penalty Payable $ 21,300
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Estimating Prepayment Penalties The lender charges the higher of 3 Months Interest or IRD. Therefore, Josiah will face a $21,300 prepayment penalty.
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Estimating Prepayment Penalties: Practice Estimate the mortgage prepayment penalties for the following individuals: 1. Esther has a $500,000 mortgage with 24 months remaining in its term. Her original mortgage amount at the beginning of her term was $600,000. She locked in a fixed interest rate at that time of 4%. Current rates in the marketplace are 3%. Her lender allows her to prepay her mortgage up to 20% in any calendar year without penalty. How much penalty will she face if she pays out her mortgage and has not used any prepayment privileges yet this year? 2. Jesse has a $400,000 variable rate mortgage with 30 months remaining in its term and an amortization of 17 years. His interest rate is currently 3.35%. His mortgage at the beginning of the her term was $480,000. His lender allows him to make prepayment privileges of 15% per year. He has already made a lump sum payment of $40,000 this year. Variable interest rates now offer higher discounts than when Jimmy originally locked in to his variable rate. Rates are currently available at 3.0%. How much penalty will Jimmy face if he pays out his mortgage?
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Esther’s Mortgage Prepayment Original Mortgage Amount $600,000 X 20% Prepayment Privilege x 20% Total Prepayment Allowed $120,000 Current Mortgage Balance $500,000 - Prepayment Privilege - $120,000 Amount That Prepayment $380,000 Penalty Will Be Based On
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Esther’s Mortgage Prepayment 1. Three Months Interest Mortgage Amount $ 380,000 X Interest Rate X 4% ÷ 12 ÷ 12 X 3 X 3 Estimated Penalty Payable $ 3,800 2. Interest Rate Differential Mortgage Amount $ 380,000 X Difference in Interest Rates X 4% - 3% ÷ 12 ÷ 12 X Number of Months Remaining in Term X 24 Estimated Penalty Payable $ 7,600
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Jesse’s Mortgage Prepayment Original Mortgage Amount $480,000 X 15% Prepayment Privilege x 15% Total Prepayment Allowed $ 72,000 - Lump Sum Already Made $ 40,000 Remaining Prepayment Allowed $ 32,000 Current Mortgage Balance $400,000 - Prepayment Privilege - $ 32,000 Amount That Prepayment $368,000 Penalty Will Be Based On
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Jesse’s Mortgage Prepayment 1. Three Months Interest Mortgage Amount $ 368,000 X Interest Rate X 3.35% ÷ 12 ÷ 12 X 3 X 3 Estimated Penalty Payable $ 3,082
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
What If The Client Can’t Afford the Prepayment Penalty? For variable rate mortgages: 1. Renegotiate the mortgage and add the cost of any penalties and legal fees (if required) to the new mortgage. For fixed rate mortgages: 2. Renegotiate the mortgage and add the cost of any penalties and legal fees (if required) to the new mortgage. or 2. Blend and extend the current mortgage.
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Options for Consolidating Debt Using a Mortgage: Example Suzette’s condo is worth $400,000. She owes $200,000 on her 6% fixed- rate mortgage compound semi annually that has three years remaining in its term. Suzette pays $2,202.25 per month towards it. She also has the following debts: $25,000 unsecured line of credit at 7% with a monthly payment of $750. $20,000 on a student loan at 7%, with a monthly payment of $232. $15,000 credit card at 20% with a monthly payment of $253. Additional Monthly Loan Costs - $1235 Total Mortgage and Debt Cost - $3437.25 She has already used up her prepayment privileges for the year. She can get a new mortgage at 4% or add funds to her existing mortgage at a rate of 5%. Suzette has a conventional mortgage charge against her property. Her lender charges $300 to discharge any mortgage and $500 to set up new legal documents for any mortgage.
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Suzette’s Debt Consolidation Step 1: Find the amortization of the current mortgage. Step 2: Find the prepayment penalty for the current mortgage. Three-Months Interest = $200,000 x 6% ÷ 12 x 3 = $3,000 Interest Rate Differential = $200,000 x (6% – 4%) ÷ 12 x 36 = $12,000 • IRD of $12,000 will be the penalty. Step 3: Find the payment if the penalty is paid and a new mortgage is set up. New Mortgage Amount = $200,000 + $60,000 + $12,000 + $300 + $500 = $272,800 MODE P/Y C/Y I/Y PV PMT FV N END 12 2 6 200,000 -2,202.25 0 121 MODE P/Y C/Y N I/Y PV FV PMT END 12 2 121 4 272,800 0 -2,739.13
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Suzette’s Debt Consolidation Step 4: Find the interest rate if the mortgage is blended and extended. New Mortgage Amount = $200,000 + $60,000 + $300 + $500 = $260,800 Blended Rate = $200,000 x 6% + $60,800 x 5% = 5.7668% $260,800 $260,800 Step 5: Find the payment if the mortgage is blended and extended. Step 6: choose the option with the lowest payment. New Mortgage Payment = $2,739.13 vs Blend and Extend Mortgage Payment = $2,838.59 Therefore, Suzette should payout her current mortgage and get a new one with a rate of 4%. This will save her $3437.25* - $2,739.13 = $698.12 per month. *amount includes existing loan costs MODE P/Y C/Y N I/Y PV FV PMT END 12 2 121 5.7668 260,800 0 -2,838.59
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Options for Consolidating Debt Using a Mortgage: Practice Tyrone owns his own house worth $500,000. He owes $300,000 on his 5% fixed-rate mortgage compound semi annually that has four years remaining in its term and a $1,756 monthly payment. He also has the following debts: $30,000 unsecured line of credit at 7% with a monthly payment of $925. $20,000 on a student loan at 6%, with a monthly payment of $221. $15,000 credit card at 20% with a monthly payment of $253. Additional Monthly Payments - $1399 Total Mortgage and Debt : $3155 He can get a new mortgage at 4% or add funds to his existing mortgage at a rate of 4.5%. He has no prepayment room remaining on his mortgage this year. His lender has a conventional charge against his home and charges $300 to discharge any mortgage and $500 for legal fees to set up a new mortgage.
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Tyrone Debt Consolidation Step 1: Find the amortization of the current mortgage. Step 2: Find the prepayment penalty for the current mortgage. Three-Months Interest = $300,000 x 5% ÷ 12 x 3 = $3,750 Interest Rate Differential = $300,000 x (5% – 4%) ÷ 12 x 48 = $12,000 • IRD of $12,000 will be the penalty. Step 3: Find the payment if the penalty is paid and a new mortgage is set up. New Mortgage Amount = $300,000 + $65,000 + $12,000 + $300 + $500 = $377,800 MODE P/Y C/Y I/Y PV PMT FV N END 12 2 5 300,000 -1758 0 296 MODE P/Y C/Y N I/Y PV FV PMT END 12 2 296 4 377800 0 -2003.04
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Tyrone Debt Consolidation Step 4: Find the interest rate if the mortgage is blended and extended. New Mortgage Amount = $300,000 + $65,000 + $300 + $500 = $365,800 Blended Rate = $300,000 x 5% + $65,800 x 4.5% = 4.91% $365,800 $365,800 Step 5: Find the payment if the mortgage is blended and extended. Step 6: choose the option with the lowest payment. New Mortgage Payment = $2003.04 vs Blend and Extend Mortgage Payment = $2123.46 MODE P/Y C/Y N I/Y PV FV PMT END 12 2 296 4.91 365,800 0 -2123,46
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
MORTGAGE PURCHASES
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
• Secured instalment loan used to purchase real estate or borrow from the value of real estate already owned. • The process of legally taking title of the borrower’s property, with the condition that the title will be fully transferred back to the borrower when full repayment of the debt has been made. MORTGAGE
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
TYPES OF MORTGAGES USED TO PURCHASE PROPERTY Image source: ChangeMyRate.com
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
LTV CHANGES OVER TIME Image source: Home Equity Solutions
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
TOTAL MORTGAGE REQUIRED Steps: Purchase Price of Property less Down Payment plus Closing Costs plus Mortgage Default Insurance (if applicable) equals Total Mortgage Amount Required
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Down Payment Sources - Self-Funded Sources (Savings) - Gifts of Money When using a gift of money as a down payment, lenders require: The person giving the money (the giftor) to sign a letter (a gift letter) that stipulates the funds are a gift and no form of repayment is necessary. The funds need to be transferred into the borrower’s account. - Proceeds from the sale of an Existing Property
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Purchase Price Minimum Down Payment Required $0 to $499,999.99 5% of the purchase price $500,000.00 to $999,999.99 5% of the first $500,000 and 10% of the amount over $500,000 $1,000,000+ 20% of the purchase price DOWN PAYMENT REQUIREMENTS Horatio would like to purchase a home worth $800,000. How much of a down payment must he provide to purchase the house? Down Payment Required = ($500,000 x 0.05) + ($800,000 - $500,000) x 0.10 = $25,000 + $30,000 = $55,000 What will his loan-to-value be and what kind of mortgage will he require? LTV = $800,000 - $55,000) ÷ $800,000 = 93.13% ∴ a high-ratio mortgage will be required.
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Purchase Price Minimum Down Payment Required $0 to $499,999.99 5% of the purchase price $500,000.00 to $999,999.99 5% of the first $500,000 and 10% of the amount over $500,000 $1,000,000+ 20% of the purchase price PRACTICE QUESTION Niamh would like to purchase a home worth $350,000. How much of a down payment must she provide to purchase the house? What will her loan-to-value be and what kind of mortgage will she require?
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Purchase Price Minimum Down Payment Required $0 to $499,999.99 5% of the purchase price $500,000.00 to $999,999.99 5% of the first $500,000 and 10% of the amount over $500,000 $1,000,000+ 20% of the purchase price PRACTICE QUESTION Niamh would like to purchase a home worth $350,000. How much of a down payment must she provide to purchase the house? Down-Payment Required = $350,000 x 0.05 = $17,500 What will her loan-to-value be and what kind of mortgage will she require? LTV = ($350,000 - $17,500) ÷ $350,000 = 95% ∴ a high-ratio mortgage will be required.
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
When purchasing a residential property, buyers face a number of closing costs, including: • Land transfer tax/fees • Title insurance premium • Sales tax •Pre-paid property tax and utility bill reimbursements • Legal and administration fees Closing costs are estimated to be between 1.5% and 4.0% of the property’s purchase price. When in doubt, be conservative and use 4.0%. CLOSING COSTS
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
A land transfer tax (or similar fees) is payable to the provincial government where the property is located when an individual acquires a property. Some municipalities also charge a land transfer tax to support their tax base. Title insurance is “an insurance policy that protects residential or commercial property owners and their lenders against losses related to the property’s title or ownership, including title issues that prevent the property owner from having clear ownership of the property,”71 such as title fraud, where the title to a property is fraudulently transferred without the owner’s knowledge to a criminal. Title insurance is available for a one- time premium and covers the purchaser for as long as he or she owns the property. Two main types of sales taxes are charged when an individual purchases a property. First, the goods and services tax (GST) and/or harmonized sales tax (HST) are charged on the sale price of the house. In many cases, the GST/HST (and any applicable rebates) are already included in the selling price.
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
When a buyer purchases a property, he or she needs a lawyer to complete the work required to transfer title of the property from the previous owner to him or her. The lawyer searches the title of the new property to ensure there are no undisclosed mortgages or liens against it. The lawyer also collects the deposit from the purchaser (generally via a bank draft or certified cheque payable to the lawyer, in trust) and the funds the purchaser has borrowed as a mortgage from the financial institution. Together, these funds are disbursed to: The property seller’s lawyer, in trust, for payment of the property The provincial government (and municipality, if applicable) for land transfer taxes/fees The insurance company providing the title insurance for the purchaser The federal government for the GST/HST payable The provincial government for PST owing on any mortgage default insurance The property seller’s lawyer, in trust, for any prepaid property taxes or utility bills The land registry office for registering changes to the title of a property The lawyer for his or her services The lawyer then transfers title of the property to the purchaser and registers the mortgage on the property. After everything is complete, the purchaser’s lawyer obtains the keys from the seller’s lawyer (on the closing date) and provides them to the purchaser. Legal Fees
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Gerrard has purchased a property worth $750,000. How much should he estimate for closing costs? Closing Costs Estimate = $750,000 x 0.04 = $30,000 CLOSING COSTS
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Shivani graduated from college three years ago and has been saving to purchase her first home. The conditional offer of purchase shows an agreed-upon purchase price of $250,000. She has saved $35,000 in her Tax-Free Savings Account (TFSA) and her parents will provide her with a gift of an additional $35,000. How much of a mortgage will Shivani require? WITH NO EXISTING MORTGAGE IN PLACE PURCHASING A RESIDENTIAL PROPERTY USING A CONVENTIONAL MORTGAGE
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
WITH NO EXISTING MORTGAGE IN PLACE PURCHASING A RESIDENTIAL PROPERTY USING A CONVENTIONAL MORTGAGE
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Tyrone and Tanya are expecting twins and have decided they need a larger home. They have found a house they would like to purchase, with an asking price is $500,000. They have cash savings of $25,000 to put towards their down payment. They also plan to sell their existing property for $375,000 and use the net proceeds of the sale, after paying their mortgage of $150,000 and the realtor’s fees, as part of their down payment for the new house. How much of a mortgage will Tyrone and Tanya require? WITH AN EXISTING MORTGAGE IN PLACE PURCHASING A RESIDENTIAL PROPERTY USING A CONVENTIONAL MORTGAGE
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
WITH AN EXISTING MORTGAGE IN PLACE PURCHASING A RESIDENTIAL PROPERTY USING A CONVENTIONAL MORTGAGE
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
PURCHASING A RESIDENTIAL PROPERTY USING A HIGH-RATIO MORTGAGE • Mortgage default insurance must be charged on the value of the mortgage balance • The borrower can choose to pay the mortgage default insurance premium upfront on the closing day, or finance it over time by adding it to the mortgage. Under the latter option, which is the most commonly chosen, the borrower’s total mortgage increases in value by the premium amount.
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
CALCULATING MORTGAGE DEFAULT INSURANCE Gerard wants to purchase a house worth $750,000. He has saved up $120,000 as a down payment. How much will his mortgage default insurance premium be? Purchase Price + Closing Costs - Down Payment $ 750,000 + $ 30,000 - $ 120,000 $ 660,000 LTV = $660,000 ÷ $750,000 = 88.00% Total Mortgage Amount Mortgage Default Insurance Premium = $660,000 x 3.10% = $20,460
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
After renting for a number of years, Charles and Cora recently decided to purchase their first home together in British Columbia. The conditional offer has a purchase price of $598,900. They will use a total of $100,000 from their respective TFSAs as their down payment. WITH NO EXISTING MORTGAGE IN PLACE PURCHASING A RESIDENTIAL PROPERTY USING A HIGH-RATIO MORTGAGE
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
WITH NO EXISTING MORTGAGE IN PLACE PURCHASING A RESIDENTIAL PROPERTY USING A HIGH-RATIO MORTGAGE
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Vladimir has found a house he would like to purchase, with an asking price is $450,000. He has cash savings of $50,000 to put towards his down payment. He also plans to sell his existing property for $225,000 and use the net proceeds of the sale, after paying his mortgage of $100,000 and the realtor’s fees of 6%, as part of his down payment for the new house. How much of a mortgage will Vladimir require? PRACTICE QUESTION
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
PRACTICE QUESTION – SOLUTION Purchase Price $450,000 Closing Costs @4% $18,000 Total $468,000 Selling Price $225,000 Realtor Costs $13,500 Mortgage $100,000 Net Proceeds of sale $111,500 Savings Down $50,000 Total Mortgage $306,500 LTV 68%
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Danica is purchasing her first home in Ontario. The conditional offer has a purchase price of $400,000. She will use a total of $60,000 from her TFSA as her down payment. How much of a mortgage will Danica require? PRACTICE QUESTION
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
PRACTICE QUESTION – SOLUTION Purchase Price $400,000 Closing Costs @4% $16,000 Total Funds Required $416,000 Savings Down $60,000 Total Mortgage $356,000 LTV 89% Premium Default Insurance 3.10% Or $11,036
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Example Finegan and Madeline would like to purchase a larger house. Their current home is worth $400,000, and they owe $150,000 on their mortgage. The new house they would like to purchase costs $700,000 (including HST). In addition to using the proceeds from the sale of their existing property, they have also saved $50,000 in their savings account to put toward their down payment for their new house. How much will they need to borrow as a mortgage? Sale Price of Existing Property - Mortgage Balance - Real Estate Commissions $ 400,000 - $ 150,000 Net Proceeds from Sale - $ 24,000 $ 226,000 Purchase Price + Closing Costs - Down Payment $ 700,000 + $ 28,000 - $ 276,000 Total Mortgage Amount LTV = $452,000 ÷ $700,000 = 64.57% $ 452,000
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
MORTGAGE PURCHASES
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
• Secured instalment loan used to purchase real estate or borrow from the value of real estate already owned. • The process of legally taking title of the borrower’s property, with the condition that the title will be fully transferred back to the borrower when full repayment of the debt has been made. MORTGAGE
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
TYPES OF MORTGAGES USED TO PURCHASE PROPERTY Image source: ChangeMyRate.com
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
LTV CHANGES OVER TIME Image source: Home Equity Solutions
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
TOTAL MORTGAGE REQUIRED Steps: Purchase Price of Property less Down Payment plus Closing Costs plus Mortgage Default Insurance (if applicable) equals Total Mortgage Amount Required
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Down Payment Sources - Self-Funded Sources (Savings) - Gifts of Money When using a gift of money as a down payment, lenders require: The person giving the money (the giftor) to sign a letter (a gift letter) that stipulates the funds are a gift and no form of repayment is necessary. The funds need to be transferred into the borrower’s account. - Proceeds from the sale of an Existing Property
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Purchase Price Minimum Down Payment Required $0 to $499,999.99 5% of the purchase price $500,000.00 to $999,999.99 5% of the first $500,000 and 10% of the amount over $500,000 $1,000,000+ 20% of the purchase price DOWN PAYMENT REQUIREMENTS Horatio would like to purchase a home worth $800,000. How much of a down payment must he provide to purchase the house? Down Payment Required = ($500,000 x 0.05) + ($800,000 - $500,000) x 0.10 = $25,000 + $30,000 = $55,000 What will his loan-to-value be and what kind of mortgage will he require? LTV = $800,000 - $55,000) ÷ $800,000 = 93.13% ∴ a high-ratio mortgage will be required.
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Purchase Price Minimum Down Payment Required $0 to $499,999.99 5% of the purchase price $500,000.00 to $999,999.99 5% of the first $500,000 and 10% of the amount over $500,000 $1,000,000+ 20% of the purchase price PRACTICE QUESTION Niamh would like to purchase a home worth $350,000. How much of a down payment must she provide to purchase the house? What will her loan-to-value be and what kind of mortgage will she require?
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Purchase Price Minimum Down Payment Required $0 to $499,999.99 5% of the purchase price $500,000.00 to $999,999.99 5% of the first $500,000 and 10% of the amount over $500,000 $1,000,000+ 20% of the purchase price PRACTICE QUESTION Niamh would like to purchase a home worth $350,000. How much of a down payment must she provide to purchase the house? Down-Payment Required = $350,000 x 0.05 = $17,500 What will her loan-to-value be and what kind of mortgage will she require? LTV = ($350,000 - $17,500) ÷ $350,000 = 95% ∴ a high-ratio mortgage will be required.
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
When purchasing a residential property, buyers face a number of closing costs, including: • Land transfer tax/fees • Title insurance premium • Sales tax •Pre-paid property tax and utility bill reimbursements • Legal and administration fees Closing costs are estimated to be between 1.5% and 4.0% of the property’s purchase price. When in doubt, be conservative and use 4.0%. CLOSING COSTS
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
A land transfer tax (or similar fees) is payable to the provincial government where the property is located when an individual acquires a property. Some municipalities also charge a land transfer tax to support their tax base. Title insurance is “an insurance policy that protects residential or commercial property owners and their lenders against losses related to the property’s title or ownership, including title issues that prevent the property owner from having clear ownership of the property,”71 such as title fraud, where the title to a property is fraudulently transferred without the owner’s knowledge to a criminal. Title insurance is available for a one- time premium and covers the purchaser for as long as he or she owns the property. Two main types of sales taxes are charged when an individual purchases a property. First, the goods and services tax (GST) and/or harmonized sales tax (HST) are charged on the sale price of the house. In many cases, the GST/HST (and any applicable rebates) are already included in the selling price.
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
When a buyer purchases a property, he or she needs a lawyer to complete the work required to transfer title of the property from the previous owner to him or her. The lawyer searches the title of the new property to ensure there are no undisclosed mortgages or liens against it. The lawyer also collects the deposit from the purchaser (generally via a bank draft or certified cheque payable to the lawyer, in trust) and the funds the purchaser has borrowed as a mortgage from the financial institution. Together, these funds are disbursed to: The property seller’s lawyer, in trust, for payment of the property The provincial government (and municipality, if applicable) for land transfer taxes/fees The insurance company providing the title insurance for the purchaser The federal government for the GST/HST payable The provincial government for PST owing on any mortgage default insurance The property seller’s lawyer, in trust, for any prepaid property taxes or utility bills The land registry office for registering changes to the title of a property The lawyer for his or her services The lawyer then transfers title of the property to the purchaser and registers the mortgage on the property. After everything is complete, the purchaser’s lawyer obtains the keys from the seller’s lawyer (on the closing date) and provides them to the purchaser. Legal Fees
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Gerrard has purchased a property worth $750,000. How much should he estimate for closing costs? Closing Costs Estimate = $750,000 x 0.04 = $30,000 CLOSING COSTS
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Shivani graduated from college three years ago and has been saving to purchase her first home. The conditional offer of purchase shows an agreed-upon purchase price of $250,000. She has saved $35,000 in her Tax-Free Savings Account (TFSA) and her parents will provide her with a gift of an additional $35,000. How much of a mortgage will Shivani require? WITH NO EXISTING MORTGAGE IN PLACE PURCHASING A RESIDENTIAL PROPERTY USING A CONVENTIONAL MORTGAGE
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
WITH NO EXISTING MORTGAGE IN PLACE PURCHASING A RESIDENTIAL PROPERTY USING A CONVENTIONAL MORTGAGE
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Tyrone and Tanya are expecting twins and have decided they need a larger home. They have found a house they would like to purchase, with an asking price is $500,000. They have cash savings of $25,000 to put towards their down payment. They also plan to sell their existing property for $375,000 and use the net proceeds of the sale, after paying their mortgage of $150,000 and the realtor’s fees, as part of their down payment for the new house. How much of a mortgage will Tyrone and Tanya require? WITH AN EXISTING MORTGAGE IN PLACE PURCHASING A RESIDENTIAL PROPERTY USING A CONVENTIONAL MORTGAGE
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
WITH AN EXISTING MORTGAGE IN PLACE PURCHASING A RESIDENTIAL PROPERTY USING A CONVENTIONAL MORTGAGE
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
PURCHASING A RESIDENTIAL PROPERTY USING A HIGH-RATIO MORTGAGE • Mortgage default insurance must be charged on the value of the mortgage balance • The borrower can choose to pay the mortgage default insurance premium upfront on the closing day, or finance it over time by adding it to the mortgage. Under the latter option, which is the most commonly chosen, the borrower’s total mortgage increases in value by the premium amount.
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
CALCULATING MORTGAGE DEFAULT INSURANCE Gerard wants to purchase a house worth $750,000. He has saved up $120,000 as a down payment. How much will his mortgage default insurance premium be? Purchase Price + Closing Costs - Down Payment $ 750,000 + $ 30,000 - $ 120,000 $ 660,000 LTV = $660,000 ÷ $750,000 = 88.00% Total Mortgage Amount Mortgage Default Insurance Premium = $660,000 x 3.10% = $20,460
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
After renting for a number of years, Charles and Cora recently decided to purchase their first home together in British Columbia. The conditional offer has a purchase price of $598,900. They will use a total of $100,000 from their respective TFSAs as their down payment. WITH NO EXISTING MORTGAGE IN PLACE PURCHASING A RESIDENTIAL PROPERTY USING A HIGH-RATIO MORTGAGE
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
WITH NO EXISTING MORTGAGE IN PLACE PURCHASING A RESIDENTIAL PROPERTY USING A HIGH-RATIO MORTGAGE
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Vladimir has found a house he would like to purchase, with an asking price is $450,000. He has cash savings of $50,000 to put towards his down payment. He also plans to sell his existing property for $225,000 and use the net proceeds of the sale, after paying his mortgage of $100,000 and the realtor’s fees of 6%, as part of his down payment for the new house. How much of a mortgage will Vladimir require? PRACTICE QUESTION
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
PRACTICE QUESTION – SOLUTION Purchase Price $450,000 Closing Costs @4% $18,000 Total $468,000 Selling Price $225,000 Realtor Costs $13,500 Mortgage $100,000 Net Proceeds of sale $111,500 Savings Down $50,000 Total Mortgage $306,500 LTV 68%
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Danica is purchasing her first home in Ontario. The conditional offer has a purchase price of $400,000. She will use a total of $60,000 from her TFSA as her down payment. How much of a mortgage will Danica require? PRACTICE QUESTION
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
PRACTICE QUESTION – SOLUTION Purchase Price $400,000 Closing Costs @4% $16,000 Total Funds Required $416,000 Savings Down $60,000 Total Mortgage $356,000 LTV 89% Premium Default Insurance 3.10% Or $11,036
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Example Finegan and Madeline would like to purchase a larger house. Their current home is worth $400,000, and they owe $150,000 on their mortgage. The new house they would like to purchase costs $700,000 (including HST). In addition to using the proceeds from the sale of their existing property, they have also saved $50,000 in their savings account to put toward their down payment for their new house. How much will they need to borrow as a mortgage? Sale Price of Existing Property - Mortgage Balance - Real Estate Commissions $ 400,000 - $ 150,000 Net Proceeds from Sale - $ 24,000 $ 226,000 Purchase Price + Closing Costs - Down Payment $ 700,000 + $ 28,000 - $ 276,000 Total Mortgage Amount LTV = $452,000 ÷ $700,000 = 64.57% $ 452,000
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
WEEK 5 CLIENT COMMUNICATIONS
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
MAKING YOUR CLIENTS FEEL WELCOMED Introduction Share a little about yourself! Contact information Methods of communication Client’s preferred communication methods
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
SHOWCASE YOUR VALUE AS A FINANCIAL PLANNER • Explaining the role of a financial planner • Education/Qualifications • Experience • How you will provide value to the client
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
COLLECTING INFORMATION • Career • Educational background • Family life • Interests • GOALS!
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
COLLECTING INFORMATION (CONT’D) • Current financial situation • Financial goals • Challenges • Insurance • Estate plan
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
EFFECTIVE COMMUNICATION SKILLS • Relax • Body language • Tone • Simple language • Supportive language • Avoid jargon • Avoid acronyms • Informative
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
ACTIVELY LISTENING • Attentiveness • Eye contact • Body language • Ask questions • Paraphrase • Refrain from jumping to conclusions • Recognize emotions
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
METHODS FOR COMMUNICATING • Face to face • Virtual meetings • Telephone • Email Be sure to let your client know what your average response time is for returning calls as well as responses to email.
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
EMAIL BEST PRACTICES - Include a simple subject line - Use a standard font - Address your recipient formally - Structure your message clearly - Short, sweet and to the point - Provide a call to action - Professional closing - Follow up
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
PROMPTNESS IS KEY!
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
BEST PRACTICES • Scheduling periodic meetings • Birthday calls • Celebrating milestones • Reaching out during times of economic uncertainty
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
HOW TO IMPROVE COMMUNICATION SKILLS & HOW MISCOMMUNICATION HAPPENS • https://www.youtube.com/watch?v=v3DiMAPolIs&ab_channel=SuccessF ormulas • https://youtu.be/gCfzeONu3Mo
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
CREDIT ADJUDICATION
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
The process of assessing a credit application. CREDIT ADJUDICATION Image source: Interior Savings
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Performing a credit adjudication involves: • Assessing the credit worthiness of the applicant or applicants and • Assessing the suitability of the credit facility for the applicant’s or applicants’ intended use. CREDIT ADJUDICATION
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
6 C’s OF CREDIT Capacity to Repay Credit History Character Capital Collateral Conditions Assessing the credit worthiness of an individual involves assessing the Six C’s of Credit.
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Credit adjudication requires quality data to be gathered about the client’s past, present, and purpose for the credit facility. THE IMPORTANCE OF DATA GATHERING Image source: Medium
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
CAPACITY TO REPAY
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
• Assesses the applicant’s ability to repay the debt. • Lenders assess an applicant’s capacity to repay using two equations: • Gross Debt Savings Ratio (GDSR) • Proportion of applicant’s income that is directed to shelter-related expenses. • Total Debt Services Ratio (TDSR) • Proportion of applicant’s income that is directed to shelter-related expenses and debt payments. CAPACITY TO REPAY
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
For applicants who rent their principal residence: GDSR Rent = Rent + ½ Condominium Fees + Heating Expense Gross Income For applicants who own their own principal residence: GDSR Own = Mortgage Payment + Property Taxes + ½ Condominium Fees + Heat Gross Income • Generally, GDSR should be 32% or less GROSS DEBT SERVICE RATIO (GDSR)
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
TDSR = Shelter Costs (as included in GDSR) + Debt Payments Gross Income • Each lender uses its own guidelines to determine minimum payments on debt obligations. Commonly used ones include: • The actual payment for installment credit facilities • 1% of the credit limit for credit cards • 3% of the credit limit for unsecured lines of credit • 1% of the credit limit for secured lines of credit • Generally, TDSR should be 40% or less TOTAL DEBT SERVICE RATIO
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Carla and Xavier are applying for a $25,000 loan to purchase a car. The five-year loan will charge 5% interest (compounded monthly). Their monthly payments include their mortgage of $1,800, their condo fees of $400, and their heating expense of $100. Their property taxes are $6,000 per year. Carla has a credit card with a $10,000 credit limit, and Xavier has a line of credit with a $15,000 credit limit. Carla and Xavier earn gross salaries of $70,000 and $50,000, respectively. GDSR Own = Mortgage + Property Taxes + ½ Condo Fees + Heat Gross Income = $1,800 + ($6,000 ÷ 12) +½ ($400) + $100 ($70,000 + 50,000) ÷ 12 = 26.00% GDSR CALCULATION
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Carla and Xavier are applying for a $25,000 loan to purchase a car. The five-year loan will charge 5% interest (compounded monthly). Their monthly payments include their mortgage of $1,800, their condo fees of $400, and their heating expense of $100. Their property taxes are $6,000 per year. Carla has a credit card with a $10,000 credit limit, and Xavier has a line of credit with a $15,000 credit limit. Carla and Xavier earn gross salaries of $70,000 and $50,000, respectively. TDSR = Shelter Costs + Debt Payments Gross Income = $2,600 + $10,000 (0.01) + $15,000 (0.03) + $472 ($70,000 + 50,000) ÷ 12 = 36.22% TDSR CALCULATION MODE P/Y C/Y N I/Y PV FV PMT END 12 12 60 5 25,000 0 -471.78
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Carla and Xavier are applying for a $25,000 loan to purchase a car. The five-year loan will charge 5% interest (compounded monthly). Their monthly payments include their mortgage of $1,800, their condo fees of $400, and their heating expense of $100. Their property taxes are $6,000 per year. Carla has a credit card with a $10,000 credit limit, and Xavier has a line of credit with a $15,000 credit limit. Carla and Xavier earn gross salaries of $70,000 and $50,000, respectively. GDSR AND TDSR REVIEW RATIO CALCULATION THRESHOLD ACCEPTABLE GDSR 26.00% ≤32% √ TDSR 36.22% ≤40% √
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Toni and Angelo are applying for a $30,000 unsecured line of credit to have for emergency purposes. Their monthly payments include their mortgage of $2,000, their condo fees of $400, and their heating expense of $125. Their property taxes are $4,200 per year. Toni owes $2,000 on a credit card with a credit limit of $20,000, which she intends to pay in full at the end of the month. Angelo has a student loan that he pays $480 per month towards. Toni and Angelo earn gross salaries of $56,000 and $52,000, respectively. PRACTICE QUESTION
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
GDSR Own = Mortgage + Property Taxes + ½ Condo Fees + Heat Gross Income = $2,000 + ($4,200 ÷ 12) +½ ($400) + $125 ($56,000 + 52,000) ÷ 12 = 29.72% √ TDSR = Shelter Costs + Debt Payments Gross Income = $2,675 + $20,000 (0.01) + $480 + $30,000 (0.03) ($56,000 + 52,000) ÷ 12 = 47.28% ꭕ PRACTICE QUESTION - SOLUTION
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
How could the credit application for Toni and Angelo be revised to help the TDSR fall within the guidelines? WHAT CAN BE DONE WHEN RATIOS EXCEED GUIDELINES?
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
When GDSR exceeds guidelines: • Identify minimum required mortgage payment based on remaining contractual amortization. When TDSR exceeds guidelines: • Identify minimum required mortgage payment based on remaining contractual amortization. • Identify minimum required payments for debts. • Reduce revolving debt credit limits to lower minimum payment requirements. • Reduce credit limit request for new credit facility. • Consolidate debts into credit request to eliminate debt payments. WHAT TO DO WHEN RATIOS EXCEED GUIDELINES
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Action Taken (Independently of Any Other Action) Resulting TDSR Reduce Toni’s credit card credit limit to $5,000. 45.61% Reduce Toni and Angelo’s request for a $30,000 line of credit to $20,000. 43.94% Consolidate Angelo’s student loan into the line of credit by paying off debt using proceeds from line of credit. 41.94% WHAT TO DO WHEN RATIOS EXCEED GUIDELINES A combination approach may need to be used, such as: •Consolidating Angelo’s student loan into the line of credit •Reducing Toni’s credit card limit to $5,000 •Reducing new line of credit limit to $29,000. } TDSR = 39.94%
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
CREDIT HISTORY
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
• Assesses the applicant’s past patterns of repayment on their debt obligations. • History has shown that past behaviour when dealing with debt is a good indicator of future behaviour when dealing with debt. • Lenders review an applicant’s credit bureau report, which contains the history of their use of debt from multiple lenders. • Each credit facility is shown and are known as “trade lines” or “trade balances”. CREDIT HISTORY
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
• Known as a “credit check”. • Require consent from the applicant. • Comes in electronic format and generally integrates with lender’s computerized credit application system. • Credit reporting agencies in Canada: • Equifax • TransUnion ACCESSING A CREDIT BUREAU REPORT
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
• The name, residential address and social insurance number of the individual • The occupation and employer of the individual • The types of credit facilities the individual has had in the past and is currently using • The credit limits and amounts owing on credit facilities • The dates when credit facilities were opened and closed • The repayment history on credit facilities, including payments made on time and late • The percentage of credit the individual has used • The number and type of credit adjudication inquiries made by lenders on behalf of the individual • Any records of collections, bankruptcy or legal orders for payments • Comments related to fraud or identity verification alerts INFORMATION AVAILABLE FROM A CREDIT BUREAU REPORT
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
1. The types of credit facilities the individual has or had access to 2. The length of time the credit facilities have been in operation 3. The ratings on the credit facilities the individual has or had 4. The way in which the individual’s credit use has changed 5. The recent inquiries made to obtain the individual’s credit bureau report WHAT LENDERS REVIEW ON CREDIT BUREAU REPORT
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
• Lenders review the types, number, and limits of credit facilities • Revolving credit ~ applicant had access to on-going credit • Installment credit ~ applicant had access to one-time credit • Mortgage credit ~ Applicant had access to large sum of credit • More revolving credit trades shows that other lenders trust the applicant to manage their own use of credit • More installment credit trades shows that other lenders trust the applicant to repay debt before obtaining more credit. REVIEWING THE TYPES OF CREDIT TRADES
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
• All else equal, a longer credit history is better than a shorter one. • e.g. A credit card where a payment has not been missed in 20 years carries greater weight than a credit card where a payment hasn’t been missed in one year. • All else equal, more recent history carries greater weight than less recent history. • e.g. A line of credit that had a late payment three years ago will not be viewed as negatively as a line of credit that had a late payment in the last year, if all payments have been made on time since then. REVIEWING THE LENGTH OF CREDIT TRADES
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
• Lenders review the alphanumeric codes associated with each credit trade to understand the repayment history on the debt. REVIEWING THE CREDIT TRADE RATINGS Type of Credit Facility Repayment Rating of Credit Facility R= Revolving I = Installment M = Mortgage 1 = Good 2 – 5 = Bad 7 – 9 = Worse
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
REVIEWING THE CREDIT TRADE RATINGS Rating Meaning 0 Approved, but not yet used 1 Paid as agreed or paid within 30 days of billing 2 Late payment 31 to 59 days 3 Late payment 60 to 89 days 4 Late payment 90 to 119 days 5 Late payment over 120 days, but not yet written off as bad debt 6 Not used 7 Making payments under consolidation order, orderly payment of debts, consumer proposal or debt management program with credit counselling agency 8 Debt with security that has been repossessed 9 Debt sent to a collection agency,, written off as bad debt, or wiped out by bankruptcy
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
• R1, I1, or M1 tend to be viewed as good credit risk. • Isolated R2, I2 or M2 tend to be viewed as acceptable credit risk if the issue has been rectified and there are sufficient other recent R1, I1, and M1 ratings. • R3, I3, or M3 may have trouble obtaining credit unless a reasonable explanation can be provided. • R4 – R5, I4 – I5, M4 – M5 are not likely to be granted additional credit. • R7 – R9, I7 – I9, and M7 – M9 will not be able to obtain credit until their debt management programs have been completed and they can reestablish an acceptable credit history. • All else equal, more recent ratings carry greater weight. REVIEWING THE CREDIT TRADE RATINGS
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
• Lenders review the quantitative and qualitative changes that an applicant’s credit usage has undergone over time. Credit Usage = Total Debt ÷ Total Credit Limits • Higher credit usage increases risk, as many people who struggle with cash flow issues turn to credit to solve their financial issues. • Reduction in revolving debts and opening of instalment debts may signal other lenders limiting their risk for some reason. • Closure of trade lines and increase or opening of installment credit may signal debt consolidation that was predicated on repayment risk. REVIEWING HOW CREDIT USAGE HAS CHANGED
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
• Credit bureau inquiries are also known as “credit checks.” • Two types of credit checks: • Hard check: Obtaining a full credit report when applying for a new credit facility. • Soft Check: Obtaining a modified credit report to ensure borrower still qualifies for existing credit facility. • Too many hard checks can negatively impact credit rating as it demonstrates credit seeking behaviour, which is associated with individuals who are in financial distress. REVIEWING RECENT CREDIT BUREAU INQUIRIES
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
CREDIT SCORES Video source: Equifax
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
CREDIT SCORES Credit Score Rating Type of Credit < 600 Poor None 600 – 649 Fair Installment 650 – 699 Good Instalment, Revolving 700 -749 Very Good Instalment, Revolving 750+ Excellent Instalment, Revolving
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
CHARACTER
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
• Individual’s residential and employment stability, ability to manage money effectively, and overall honesty. CHARACTER
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
Residential Stability • A short tenure at one’s residence is viewed as riskier since it may signal that the individual is moving to evade creditors. Employment Stability • A short tenure at one’s employer is viewed as riskier since it may signal that the individual has difficult maintaining a job. The risk of an interruption in income and default on debt are increased. RESIDENTIAL AND EMPLOYMENT STABILITY
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
• When an individual's tenure in a job is shorter, lenders look to the applicant’s employment history to see if the individual has changed positions within a company (through promotion) or moved companies for advancement opportunities. • In both cases, when an individual’s title or income has improved, lenders tend to include the individual’s combined employment with the same company or across positions when assessing the individual’s employment tenure. EMPLOYMENT TENURE
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
• Individuals who have accumulated assets through the act of saving demonstrate strong financial character, since saving shows the lender that the applicant can forego current consumption by resisting the impulse to spend remaining money. • Disclosure or omission of important information related to credit assessment (e.g. a debt that wasn’t disclosed). MONEY MANAGEMENT AND HONESTY
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
CAPITAL
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
• How much can be liquidated in the event the borrower needs cash to pay their debt? • Strong liquid assets include savings accounts, term deposits, and guaranteed investment certificates. • Moderate liquid assets include stocks, bonds, mutual funds, exchange- traded funds. • Weak liquid assets include personal-use assets (e.g. vehicles, household goods, jewelry, personal collections). • Non-registered and TFSA assets hold greater weight than RRSP assets. • Assets within Canada hold greater weight than out-of-country assets. CAPITAL
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
COLLATERAL
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
• Pledging assets as security for a debt strengthens the application and generally provides a lower interest rate as compared to an unsecured debt. • Lenders review type, value, liquidity, and location of asset. • Assets that are generally accepted at 1:1 ratio as collateral include liquid and non-volatile assets, such as: • Savings accounts • Term deposits • Guaranteed investment certificates • Residential properties • Assets that are generally accepted as collateral at a ratio lower than 1:1 include volatile assets such as publicly-traded securities. COLLATERAL
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
• Assets held within registered plans cannot be held as collateral (exception is TFSAs). • Investments that are used as collateral generally need to be publicly- traded. • Insurance policies that are used as collateral generally need to have cash surrender value attached to them. • Personal-use property is generally not accepted as collateral. • Tangible assets for a business can be used as collateral, however intangible assets cannot be used as collateral. COMMON GUIDELINES FOR COLLATERAL
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
If collateral is required by a lender, but unavailable from the borrower, a co-signor or guarantor may be a viable solution to secure the credit. ALTERNATIVES TO COLLATERAL Co-Signor Guarantor Income, assets, and credit history used to qualify for loan. Always Responsible for payments. Only in the event that borrower defaults on payments. When applicant’s income cannot support debt. Typically Used When applicant’s credit history does not satisfy lender’s guidelines.
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
CONDITIONS
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
• Lenders review how the current and potential changes to the economic conditions that exist could impact the applicant’s ability to repay their debt. • e.g. What kind of industry does the applicant work in? • e.g. What are the outlooks for the industry while the debt is outstanding? • Lenders review this under the umbrella of their own risk appetite, as this can change depending on the organization’s unique circumstances. CONDITIONS
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
CREDIT ADJUDICATION PROCESS
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help
A combined assessment of all six areas, however one risk factor can outweigh the positive factors in all other areas combined. ASSESSING THE 6 C’s OF CREDIT
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help

Related Documents

Homework #5E (HPR Annualized holding period return Effective annual rate on investment) 2 (002).docx
Homework #6A (Payback period and Discounted payback period) 3.docx
Homework #5A (Value and Expected rate of return on preferred stock) (002).docx
finance doc .docx
WQ HW1_2023_ZJUI (1).pdf
SITHKOP015_AT2_T2_Menu costing V2 Template.xlsx
DFP- Term 6 - Assessment 1 - FNSFPL502 (3).docx
bus-fpx4070 assessment 4 atempt 1.docx
Bus-fpx4070 Assessment 8 attempt 1.docx
Bus-Fpx4070 Assessment 7 Attempt 1.docx
Exam Q's.pptx
CFMB_AS_v2_Submission1.docx
Related Questions
Daniel and Jan agreed to pay $560,000 for a four-bedroom colonial home in Waltham, Massachusetts, with a $60,000 down payment. They have a 30-year mortgage at a fixed rate of 6.00% Cost of home Down payment Term of mortgage Rate of interest $560,000.00 60,000 25 6.38% Required: Please use the above information and the provided Amortization Chart to answer the below questions: Note: Use cells A4 to 87 from the given information to complete this question. 1. What is the principal (loan)? 2. How many total payments on this mortgage? 3. How much is their monthly payment? 4. How much of the first monthly payment is going towards interest? 5. How much of the first monthly payment is going towards principal? 6. After the first payment, what would be the balance of the principal? $500,000.00 300
1.Christine is getting a 30-year fixed rate $200,000 mortgage. She can get a mortgage rate of 6.5% with no points or a rate of 6.0% with 2 points. She decides it's not worth it to pay the points. Why? 2. The ____ ____ ____ ____ is a legally binding agreement that sets the terms of the property transaction to which the buy and seller agree?
Anna is buying a house selling for ​$235,000. To obtain the​ mortgage, Anna is required to make a 15​% down payment. Anna obtains a 25​-year mortgage with an interest rate of 5​%. ​a) Determine the amount of the required down payment. ​b) Determine the amount of the mortgage. ​c) Determine the monthly payment for principal and interest Number of Years Rate_% 10           15         20             25          303.0 $9.65067 $6.90582 $5.54598 $4.74211 $4.216043.5 9.88859    7.14883 5.79960 5.00624 4.490454.0 10.12451  7.39688 6.05980 5.27837 4.774154.5 10.36384 7.64993 6.32649 5.55832 5.066855.0 10.60655 7.90794 6.59956 5.84590 5.368225.5 10.85263 8.17083 6.87887 6.14087 5.677896.0 11.10205 8.43857 7.16431 6.44301 5.995516.5 11.35480 8.71107 7.45573 6.75207 6.320687.0 11.61085 8.98828 7.75299 7.06779 6.653027.5 11.87018 9.27012 8.05593 7.38991 6.992158.0 12.13276 9.55652 8.36440 7.71816 7.337658.5 12.39857 9.84740 8.67823 8.05227 7.689139.0 12.66758 10.14267 8.99726 8.39196 8.046239.5…
Visno
Required information [The following information applies to the questions displayed below.] Javier and Anita Sanchez purchased a home on January 1 of year 1 for $1,000,000 by paying $200,000 down and borrowing the remaining $800,000 with a 6 percent loan secured by the home. The Sanchezes made interest-only payments on the loan in years 1 and 2. (Leave no answer blank. Enter zero if applicable.) d. Assume year 1 is 2021 and by the beginning of year 4, the Sanchezes have paid down the principal amount of the loan to $500,000. In year 4, they borrow an additional $100,000 through a loan secured by the home in order to purchase a new car. The new loan carries a 7 percent interest rate and is termed a “home equity loan" by the lender. What amount of interest can the Sanchezes deduct on the $100,000 loan? Maximum deductible interest expense
Required Information [The following information applies to the questions displayed below.] Javier and Anita Sanchez purchased a home on January 1 of year 1 for $1,000,000 by paying $200,000 down and borrowing the remaining $800,000 with a 6 percent loan secured by the home. The Sanchezes made interest-only payments on the loan in years 1 and 2. (Leave no answer blank. Enter zero if applicable.) d. Assume year 1 is 2020 and by the beginning of year 4, the Sanchezes have pald down the principal amount of the loan to $500,000. In year 4, they borrow an additional $100,000 through a loan secured by the home in order to purchase a new car. The new loan carries a 7 percent interest rate and is termed a "home equity loan" by the lender. What amount of interest can the Sanchezes deduct on the $100,000 loan? Maximum deductible interest expense
The Smiths purchase a $600,000 house and must sell their old home inorder to make a 20 percent down payment plus closing costs of $7,000 onthe new house. Currently, they have a mortgage balance of $100,000 ontheir old home, which has been appraised at $300,000. They have beenpre-approved by the lender to qualify for a $480,000 mortgage in the newhome. The lender offers a bridge loan at 10 percent simple interest. Theclosing date on the new house is February 13, and the Smiths sell their oldhome on May 15.a. How much cash must the Smiths put down on their new house?b. How much equity do the Smiths have in their old house? c. How much must they borrow if they take a bridge loan?d. What is the dollar amount of interest paid on the bridge loan?
Anna is buying a house seling for $265,000. To oblain the morigage Anna is required to make a 10% down payment. Anna oblains e 30-year mortgage with an interest rete of 6%. H Click tha iron to view tha table of manthly paymants a) Determine the amount of the required down payment L) Delermine tre amount of the mortgage. ej Determine the manthly payment for principal and interest. a) Datermina the amaunt of the required down paymant. b) Detormine the amount of the mortgaga. e) Delermine the monthly payment for principal and interest. (Round to the nearest cent.)
Laura and Martin obtain a 30​-year, ​$170,000 conventional mortgage at 9.5​% on a house selling for ​$190,000. Their monthly mortgage​ payment, including principal and​ interest, is ​$1429.70. ​a) Determine the total amount they will pay for their house. ​b) How much of the cost will be​ interest? ​c) How much of the first payment on the mortgage is applied to the​ principal?
Felix is purchasing a brownstone townhouse for ​$2,400,000. To obtain the​ mortgage, Felix is required to make a 17​% down payment. Felix obtains a 25​-year mortgage with an interest rate of 5.5​%.     ​a) Determine the amount of the required down payment. ​b) Determine the amount of the mortgage. ​c) Determine the monthly payment for principal and interest.
[The following information applies to the questions displayed below.] Javier and Anita Sanchez purchased a home on January 1 of year 1 for $1,000,000 by paying $200,000 down and borrowing the remaining $800,000 with a 6 percent loan secured by the home. The Sanchezes made interest-only payments on the loan in years 1 and 2. (Leave no answer blank. Enter zero if applicable.) b. Assuming year 1 is 2021, how much interest would the Sanchezes deduct in year 2? Maximum deductible interest expense
SEE MORE QUESTIONS
Recommended textbooks for you
Text book image
Individual Income Taxes
Accounting
ISBN:9780357109731
Author:Hoffman
Publisher:CENGAGE LEARNING - CONSIGNMENT
Text book image
SWFT Comprehensive Vol 2020
Accounting
ISBN:9780357391723
Author:Maloney
Publisher:Cengage
Text book image
SWFT Individual Income Taxes
Accounting
ISBN:9780357391365
Author:YOUNG
Publisher:Cengage
Text book image
SWFT Comprehensive Volume 2019
Accounting
ISBN:9780357233306
Author:Maloney
Publisher:Cengage
Text book image
CONCEPTS IN FED.TAX., 2020-W/ACCESS
Accounting
ISBN:9780357110362
Author:Murphy
Publisher:CENGAGE L
Text book image
SWFT Essntl Tax Individ/Bus Entities 2020
Accounting
ISBN:9780357391266
Author:Nellen
Publisher:Cengage
SEE MORE TEXTBOOKS
Related Questions
Recommended textbooks for you
Text book image
Individual Income Taxes
Accounting
ISBN:9780357109731
Author:Hoffman
Publisher:CENGAGE LEARNING - CONSIGNMENT
Text book image
SWFT Comprehensive Vol 2020
Accounting
ISBN:9780357391723
Author:Maloney
Publisher:Cengage
Text book image
SWFT Individual Income Taxes
Accounting
ISBN:9780357391365
Author:YOUNG
Publisher:Cengage
Text book image
SWFT Comprehensive Volume 2019
Accounting
ISBN:9780357233306
Author:Maloney
Publisher:Cengage
Text book image
CONCEPTS IN FED.TAX., 2020-W/ACCESS
Accounting
ISBN:9780357110362
Author:Murphy
Publisher:CENGAGE L
Text book image
SWFT Essntl Tax Individ/Bus Entities 2020
Accounting
ISBN:9780357391266
Author:Nellen
Publisher:Cengage
SEE MORE TEXTBOOKS