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Questions and Answers
What percentage of total household credit in Canada was represented by residential mortgage credit in June 2023?
What percentage of total household credit in Canada was represented by residential mortgage credit in June 2023?
Which of the following is NOT a key player in the mortgage industry?
Which of the following is NOT a key player in the mortgage industry?
What aspect of mortgage financing has changed significantly in the past few decades?
What aspect of mortgage financing has changed significantly in the past few decades?
What role does the mortgagee have in the mortgage process?
What role does the mortgagee have in the mortgage process?
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Which of the following factors does NOT affect real estate demand and supply?
Which of the following factors does NOT affect real estate demand and supply?
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How has the mortgage lending process evolved in response to borrower needs?
How has the mortgage lending process evolved in response to borrower needs?
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What is one key area that the Canadian mortgage industry has focused on for improvement over time?
What is one key area that the Canadian mortgage industry has focused on for improvement over time?
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What is a direct consequence of the complexity of mortgage choices available to consumers?
What is a direct consequence of the complexity of mortgage choices available to consumers?
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What was one of the key measures taken by the Canadian government in 2008 to stabilize the housing market?
What was one of the key measures taken by the Canadian government in 2008 to stabilize the housing market?
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Which of the following changes was made to the maximum amortization period in 2012?
Which of the following changes was made to the maximum amortization period in 2012?
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What change occurred regarding Home Equity Lines of Credit (HELOCs) in 2011?
What change occurred regarding Home Equity Lines of Credit (HELOCs) in 2011?
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What was the maximum loan-to-value ratio for insured refinanced mortgages set to in 2010?
What was the maximum loan-to-value ratio for insured refinanced mortgages set to in 2010?
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Which down payment structure was updated in 2016 for properties over $500,000?
Which down payment structure was updated in 2016 for properties over $500,000?
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What is the new maximum Gross Debt Service (GDS) Ratio as of 2012 for borrowers with credit scores of 680 or higher?
What is the new maximum Gross Debt Service (GDS) Ratio as of 2012 for borrowers with credit scores of 680 or higher?
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What was the purpose of the Canadian government initiatives implemented during the financial crisis?
What was the purpose of the Canadian government initiatives implemented during the financial crisis?
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What was required for insured mortgages with terms less than five years in 2010?
What was required for insured mortgages with terms less than five years in 2010?
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What caused mortgage lenders to face challenges in the early 1970s?
What caused mortgage lenders to face challenges in the early 1970s?
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What is a defining characteristic of a partially amortized mortgage?
What is a defining characteristic of a partially amortized mortgage?
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How does the loan term of a mortgage typically compare to its amortization period?
How does the loan term of a mortgage typically compare to its amortization period?
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What happens at the maturity date of a mortgage?
What happens at the maturity date of a mortgage?
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What was notable about the interest rate change from January 1972 to three years later?
What was notable about the interest rate change from January 1972 to three years later?
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Why were mortgage agreements altered during the increase in interest rates?
Why were mortgage agreements altered during the increase in interest rates?
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What is the typical duration of a mortgage term compared to its amortization period?
What is the typical duration of a mortgage term compared to its amortization period?
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What is the implication of a rising prime mortgage rate for variable mortgage rates?
What is the implication of a rising prime mortgage rate for variable mortgage rates?
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What does the term 'supply' refer to in the context of the real estate market?
What does the term 'supply' refer to in the context of the real estate market?
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Which factor does NOT directly affect the demand for housing?
Which factor does NOT directly affect the demand for housing?
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What primarily causes population growth in a given area?
What primarily causes population growth in a given area?
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How does a decrease in fertility rates below replacement levels impact population size?
How does a decrease in fertility rates below replacement levels impact population size?
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Which of the following is a demographic factor that influences housing demand?
Which of the following is a demographic factor that influences housing demand?
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What is the significance of immigration in relation to population trends?
What is the significance of immigration in relation to population trends?
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Which statement best describes the interaction of factors affecting housing demand?
Which statement best describes the interaction of factors affecting housing demand?
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Which demographic variable is crucial for indicating potential housing demand?
Which demographic variable is crucial for indicating potential housing demand?
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What is a common trend regarding consumer preference in housing as Canadian households increase in wealth?
What is a common trend regarding consumer preference in housing as Canadian households increase in wealth?
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Which demographic is identified as having a preference for high-rise condominiums in downtown areas?
Which demographic is identified as having a preference for high-rise condominiums in downtown areas?
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How does government policy influence housing supply?
How does government policy influence housing supply?
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What effect do land-use regulations typically have on housing development?
What effect do land-use regulations typically have on housing development?
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Which consumer preference trend was prominent in North America after the Second World War?
Which consumer preference trend was prominent in North America after the Second World War?
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What impact does the concentration of a particular ethnic group in a community have on housing demand?
What impact does the concentration of a particular ethnic group in a community have on housing demand?
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What tends to happen to housing supply when demand for downtown homes increases?
What tends to happen to housing supply when demand for downtown homes increases?
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Which of the following is least likely to influence the supply of housing?
Which of the following is least likely to influence the supply of housing?
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Study Notes
Introduction to Mortgage Financing
- Canadian mortgage industry is a significant part of the Canadian economy, with residential mortgage credit outstanding at approximately $2,118 billion as of June 2023
- The industry is characterized by continuous growth and evolution, with new participants and products emerging constantly
- This text aims to provide a comprehensive understanding of the Canadian mortgage industry, including its historical context, legal and regulatory framework, mathematical principles involved in mortgage financing, the mortgage process from application to closing, and professional standards and best practices
- A mortgage functions as a legal agreement where a borrower (mortgagor) pledges property as security for a debt to the lender (mortgagee)
History of the Mortgage Industry
- The mortgage market is dynamic and subject to ongoing transformations
- Significant changes have occurred in the past few decades across various aspects, including mortgage terms, repayment options, availability of funds, interest rates, and funding sources
- Mortgage lending practices have evolved from simple repayment plans to complex arrangements due to evolving borrower and lender needs
- The rise in mortgage rates in the 1970s came as a shock to lenders accustomed to relatively stable interest rates in the 1950s and 1960s
- To mitigate the risk associated with interest rate fluctuations, partially amortized mortgages became the most common mortgage type, offering protection for both borrowers and lenders
- The global financial crisis of 2008-2009, the most severe since the Great Depression, triggered a wave of government initiatives in Canada to stabilize the banking and housing market, including:
- Lowering the maximum permissible amortization period for insured mortgages
- Mandating minimum down payment requirements
- Introducing qualifying rate requirements for mortgages with terms less than five years
- Adjusting loan-to-value ratios for insured and refinanced mortgages
- Establishing maximum Gross Debt Service (GDS) and Total Debt Service (TDS) ratios
- Setting a maximum purchase price limit for properties eligible for mortgage default insurance
Factors Affecting Real Estate
- Understanding the supply and demand dynamics is essential for analyzing the real estate market
- Supply represents the total number of housing units readily available for purchase, while demand reflects the number of households seeking to purchase housing and having the financial means to do so
Demand Factors
- Several factors influence the demand for housing:
- Demographics: Age, income, sex, education, occupation, and other population characteristics
- Economics: Broad economic forces impacting interest rates and economic growth
- Consumer Choice: Preferences for specific housing types
- Population size and growth are crucial demographic variables, with larger populations generally generating higher demand for housing
- Population growth arises from natural growth (births) and migration (immigration and emigration)
- Natural growth is influenced by fertility rates, which are below replacement levels in many developed countries, indicating a potential future population decline
- However, immigration can offset this decline and sustain population growth
- Economics plays a significant role in consumer choice: As households become wealthier, they tend to consume more and higher quality housing
- Increases in household incomes often lead Canadians to opt for owner-occupied housing over rentals
- Consumer preferences influence housing production locations:
- Post-World War II, suburban areas were popular for new housing
- More recently, there has been a shift toward downtown or prime locations in certain cities, favoring high-rise condominiums
- Ethnicity can also impact preferences: Some ethnic groups favor multi-generational living arrangements, leading to higher demand for larger homes with extra bedrooms and kitchens
Supply Factors
- Supply of housing is influenced by numerous factors, including demand factors, government actions, and regulations:
- Government policies aimed at increasing mortgage financing can boost housing demand and facilitate construction financing
- Federal government economic actions such as policies to maintain low inflation, low interest rates, and promote economic growth positively impact housing demand and supply
- Municipal land-use regulations can impact housing supply by either restricting or permitting additions to existing properties or changes in residential development types
- For example, regulations may limit the creation of basement apartments or second suites or restrict the replacement of single-family homes with high-rise condominiums
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Description
Explore the intricacies of the Canadian mortgage industry, which has reached an outstanding credit level of approximately $2,118 billion. This quiz covers the historical context, legal frameworks, mathematical principles, and best practices associated with mortgage financing in Canada.
