Mortgage Amortization Period Quiz
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Questions and Answers

What is one reason why someone might need to choose a longer amortization period?

  • To reduce the number of ratio tests required
  • To have lower monthly payments (correct)
  • To increase the total interest paid
  • To speed up mortgage repayment

    • What is the longest amortization period allowed on Canadian mortgages?

  • 15 years
  • 30 years
  • 25 years (correct)
  • 20 years

    • What advantage does a mortgage broker have over a bank in arranging mortgages for home buyers?

  • Exclusive access to limited mortgage products
  • Limited options for mortgage shopping
  • Ability to offer higher interest rates
  • Negotiating lower mortgage rates than banks (correct)

    • What does an open mortgage allow the borrower to do?

    <p>Pay off the mortgage without penalty</p> Signup and view all the answers

    When might an open mortgage be useful to a home buyer?

    <p>When planning to pay off the mortgage early without penalty</p> Signup and view all the answers

    Why might a bank be unable to fully match the rate that a mortgage broker can obtain for a home buyer?

    <p>Banks prioritize preferred customers over others</p> Signup and view all the answers

    What is one way an investor can mitigate risk while still benefiting from the higher yields of junk bonds?

    <p>Investing in a fund holding a diversified portfolio of junk bonds</p> Signup and view all the answers

    What distinguishes Real Return Bonds (RRBs) from regular bonds?

    <p>They provide protection against inflation by adjusting interest rates</p> Signup and view all the answers

    When are Real Return Bonds (RRBs) considered advantageous investments?

    <p>When the official rate of inflation is high</p> Signup and view all the answers

    What is the primary reason investors consider Real Return Bonds (RRBs) as useful investments?

    <p>To protect against long-term risks of inflation</p> Signup and view all the answers

    How do Real Return Bonds (RRBs) perform compared to regular bonds in high inflation scenarios?

    <p>RRBs outperform regular bonds due to pegged interest rates</p> Signup and view all the answers

    What is the maturity period typically associated with Real Return Bonds (RRBs)?

    <p>15-20 years</p> Signup and view all the answers

    What is one of the benefits of using a TFSA as an emergency fund?

    <p>Access funds quickly without penalties</p> Signup and view all the answers

    What is one advantage of an RRSP contribution regarding maintaining financial flexibility?

    <p>Withdrawn funds can be replaced in future years</p> Signup and view all the answers

    How does the text differentiate between saving money and investing?

    <p>The level of risk involved</p> Signup and view all the answers

    What is compounding in the context of investing?

    <p>The process of reinvesting earnings to generate more earnings</p> Signup and view all the answers

    What is one way to utilize a tax refund from making RRSP contributions?

    <p>Paying down mortgage principal</p> Signup and view all the answers

    In what way can a TFSA be utilized for financial goals other than retirement?

    <p>Accumulating funds for a home down payment</p> Signup and view all the answers

    What is the maximum combined OAS and GIS payment that an individual can receive per month?

    <p>$1,443</p> Signup and view all the answers

    Which type of pension plan provides a retired employee with a predetermined monthly benefit based on earnings history, years of service, and age?

    <p>Defined Benefit Plan</p> Signup and view all the answers

    What percentage of public-sector employees belong to a Defined Benefit Pension Plan according to the text?

    <p>80%</p> Signup and view all the answers

    What is the main factor that determines the eventual pension benefit in a Defined Contribution Pension Plan?

    <p>Investment earnings</p> Signup and view all the answers

    What does it mean for an employee's pension plan to be vested?

    <p>The employee has full ownership of all funds in the plan</p> Signup and view all the answers

    What happens if an employee's employment is terminated before achieving vested status in the pension plan?

    <p>The funds are forfeited</p> Signup and view all the answers

    Why is travel medical insurance necessary when leaving Canada?

    <p>To avoid skyrocketing medical costs in case of sudden medical care needs</p> Signup and view all the answers

    Why is home insurance considered a mandatory expense for prudent homeowners?

    <p>To help cover additional living expenses if temporarily unable to live in the home</p> Signup and view all the answers

    What makes travel insurance a valuable protection for travelers?

    <p>It provides financial coverage for various risks associated with traveling</p> Signup and view all the answers

    In what scenario would not having travel medical insurance be most detrimental?

    <p>When requiring immediate medical attention while abroad</p> Signup and view all the answers

    Why should travelers consider insuring themselves and their families before leaving Canada?

    <p>To avoid unexpected expenses related to emergency medical care outside Canada</p> Signup and view all the answers

    What motivates homeowners to accept home insurance as a mandatory expense?

    <p>To protect their most valuable asset and belongings in case of unforeseen events</p> Signup and view all the answers

    What must happen to an RRSP by the end of the year the holder turns 71?

    <p>It must be converted to a Registered Retirement Income Fund (RRIF)</p> Signup and view all the answers

    What percentage of the RRIF balance must be withdrawn in the first year upon starting withdrawals?

    <p>5.4%</p> Signup and view all the answers

    What happens to the remaining balance in an RRSP or RRIF when the owner passes away?

    <p>It passes tax-free to a designated spouse</p> Signup and view all the answers

    What does the term 'marginal tax bracket' refer to?

    <p>The tax rate applied to the next dollar of income earned</p> Signup and view all the answers

    At what age does the percentage of RRIF withdrawals peak at 20%, as per the text?

    <p>95</p> Signup and view all the answers

    What type of investments should a prudent investor consider including in their portfolio, especially as they approach retirement?

    <p>Fixed-income securities</p> Signup and view all the answers

    What defines financial independence?

    <p>Being able to maintain a desired lifestyle without employment income</p> Signup and view all the answers

    In the context of investments, what is the primary purpose of a bond?

    <p>To provide periodic interest payments and return the principal</p> Signup and view all the answers

    When an individual buys a bond, what role do they take on in relation to the issuer?

    <p>Creditor</p> Signup and view all the answers

    What distinguishes Real Return Bonds (RRBs) from regular bonds?

    <p>Offer protection against inflation</p> Signup and view all the answers

    How does the text describe the relationship between interest rates and returns on fixed-income securities?

    <p>Returns become unattractive when rates are low</p> Signup and view all the answers

    What is the main benefit of contributing to an RRSP in terms of tax treatment?

    <p>Contributions are tax-deductible in the year they are made.</p> Signup and view all the answers

    How are withdrawals from an RRSP typically treated for tax purposes?

    <p>Withdrawals are subject to full taxation as regular income.</p> Signup and view all the answers

    What happens to the earnings on funds held within an RRSP in terms of tax treatment?

    <p>Earnings are fully tax-exempt until they are withdrawn.</p> Signup and view all the answers

    For how long can earnings on funds held within an RRSP remain tax-exempt?

    <p>Until the funds are withdrawn</p> Signup and view all the answers

    What percentage of earned income can be contributed to an RRSP in any calendar year?

    <p>18%</p> Signup and view all the answers

    How does having an RRSP help individuals maintain financial flexibility?

    <p>By offering a balance between savings and tax advantages</p> Signup and view all the answers

    What is the minimum percentage of a RRIF's total value that must be withdrawn beginning the year after an RRSP holder turns 71?

    <p>5.4%</p> Signup and view all the answers

    Which of the following is NOT an item to consider when making individual retirement plans based on the text?

    <p>Presence of a car loan</p> Signup and view all the answers

    At what age does the minimum withdrawal from an RRIF reach 20% according to the text?

    <p>95</p> Signup and view all the answers

    Which contribution ceases upon retirement based on the text?

    <p>Union dues</p> Signup and view all the answers

    Seniors qualify for a tax credit of up to $2,000 annually if they:

    <p>Receive pension or RRIF income</p> Signup and view all the answers

    How are Index Funds typically managed and available for purchase?

    <p>Managed by fund managers and available directly through banks</p> Signup and view all the answers

    What distinguishes Exchange Traded Funds (ETFs) from Index Funds in terms of trading?

    <p>ETFs can be bought and sold like stocks on stock exchanges, while Index Funds are managed by banks</p> Signup and view all the answers

    What is a common way to purchase Guaranteed Investment Certificates (GICs) and Treasury Bills (T-Bills)?

    <p>Directly at most major financial institutions</p> Signup and view all the answers

    How long must investment values rise in order for it to be considered a Bull Market?

    <p>At least three months</p> Signup and view all the answers

    In a Bear Market, what typically happens to investment values?

    <p>They decrease by more than 20%</p> Signup and view all the answers

    What is the defining feature of a Market Correction?

    <p>A temporary reverse movement of at least 10%</p> Signup and view all the answers

    What led to major banks worldwide being threatened with collapse according to the text?

    <p>Falling house prices and delinquencies in mortgage payments</p> Signup and view all the answers

    In the context of the U.S. economic crisis of 2008/2009, what happened as house prices began to soften in 2006?

    <p>Delinquencies in mortgage payments soared</p> Signup and view all the answers

    What event led to major write-downs of capital assets by many banks and financial institutions globally?

    <p>Falling house prices and delinquencies in mortgage payments</p> Signup and view all the answers

    Why were many U.S. mortgages issued to homeowners with a restricted ability to repay their loans?

    <p>Due to low interest rates at the time</p> Signup and view all the answers

    What was created in a semi-coordinated, world-wide effort to prevent the global recession from deteriorating into a full-blown depression?

    <p>Government bailouts</p> Signup and view all the answers

    What caused delinquencies to soar and foreclosures to follow during the U.S. economic crisis of 2008/2009?

    <p>Falling house prices</p> Signup and view all the answers

    What is a potential disadvantage of choosing a longer amortization period for a mortgage?

    <p>Increased total interest paid</p> Signup and view all the answers

    What is the primary advantage a mortgage broker has over a bank when arranging mortgages?

    <p>Access to multiple lenders for better deals</p> Signup and view all the answers

    When might an open mortgage be useful to a home buyer?

    <p>When planning to move frequently</p> Signup and view all the answers

    What is a potential downside of banks compared to mortgage brokers in negotiating mortgage rates?

    <p>Banks rarely match rates offered by brokers</p> Signup and view all the answers

    In what way does a longer amortization period impact the ability to qualify for a mortgage?

    <p>Makes it easier to qualify due to lower monthly payments</p> Signup and view all the answers

    What is a feature of an open mortgage that benefits borrowers?

    <p>Penalty-free early repayment options</p> Signup and view all the answers

    How are contributions to an RRSP treated for tax purposes?

    <p>Contributions are fully tax-deductible in the year they are made.</p> Signup and view all the answers

    What is the main benefit of having a bank automatically transfer money to a savings account?

    <p>It allows for easy saving without temptation to spend.</p> Signup and view all the answers

    What happens to earnings made on funds held within an RRSP while they remain within the plan?

    <p>They are exempt from tax until withdrawn.</p> Signup and view all the answers

    How are withdrawals from an RRSP treated for tax purposes?

    <p>Withdrawals are taxed as regular income in the year they are withdrawn.</p> Signup and view all the answers

    What is the primary purpose of setting up an RRSP according to the text?

    <p>To save for retirement efficiently and with tax benefits.</p> Signup and view all the answers

    What percentage of the RRIF balance must be withdrawn in the first year, as stated in the text?

    <p>8.5%</p> Signup and view all the answers

    What happens to the RRSP or RRIF balance when the owner dies, as per the text?

    <p>It is fully taxable and included in the deceased owner's final tax return.</p> Signup and view all the answers

    Define a 'Registered Retirement Income Fund' (RRIF) based on the text.

    <p>A fund that is converted from an RRSP no later than the year the holder turns 71.</p> Signup and view all the answers

    What is the term 'marginal tax bracket' referring to, as mentioned in the text?

    <p>The tax rate on the last dollar of income earned.</p> Signup and view all the answers

    When do withdrawals from a Registered Retirement Income Fund (RRIF) have to start according to the text?

    <p>At age 71, no later than December 31 of that year.</p> Signup and view all the answers

    What types of investments can be made within an RRSP, according to the text?

    <p>$25,000 in stocks and $15,000 in savings accounts among others.</p> Signup and view all the answers

    What distinguishes a single bond from a bond fund?

    <p>A bond fund is invested in multiple bonds with varying interest payments and maturity dates.</p> Signup and view all the answers

    How are bond funds different from single bonds in terms of maturity?

    <p>Bond funds do not mature.</p> Signup and view all the answers

    What sets bond funds apart from single bonds regarding interest rate guarantee?

    <p>Bond funds guarantee specific interest rates.</p> Signup and view all the answers

    How do bond funds vary from single bonds in terms of investment composition?

    <p>Bond funds consist of various bonds with different interest rates.</p> Signup and view all the answers

    In what way does the composition of a single bond differ from that of a bond fund?

    <p>Bond funds consist of multiple bonds with different characteristics.</p> Signup and view all the answers

    How do bond funds differ from single bonds in terms of investment risk?

    <p>Bond funds expose investors to the risk of varying interest payments and maturities.</p> Signup and view all the answers

    Why might an open mortgage be useful for someone expecting to come into a large sum of money soon?

    <p>To take advantage of lower interest rates in the short term</p> Signup and view all the answers

    What is the significance of the prime rate in the context of lending?

    <p>It reflects the average lending rate across all banks</p> Signup and view all the answers

    Why is it important for young individuals to establish good spending and debt-management habits early on?

    <p>To avoid financial struggles in the future</p> Signup and view all the answers

    What are some reasons mentioned in the text why saving money becomes challenging once you have a full-time job and live independently?

    <p>Owning a car with associated expenses</p> Signup and view all the answers

    In what scenario would someone not benefit from an open mortgage despite expecting a large sum of money?

    <p>When they prefer fixed interest rates</p> Signup and view all the answers

    Why are early spending and debt-management habits particularly crucial for young people according to the text?

    <p>To set them up for financial success in the long run</p> Signup and view all the answers

    What does a bond's 'par value' represent?

    <p>The predetermined amount to be paid out on its maturity date</p> Signup and view all the answers

    Why does the price of a bond change over time?

    <p>As a result of changes in prevailing interest rates</p> Signup and view all the answers

    What is a 'capital gain' in the context of buying and selling bonds?

    <p>The difference between the current market price and the initial purchase price of the bond</p> Signup and view all the answers

    How can a bondholder prevent a 'capital loss' when buying and selling bonds?

    <p>By holding on to the bond until its maturity date</p> Signup and view all the answers

    What is a 'junk bond'?

    <p>A high-risk, high-yield bond issued by companies with poor credit ratings</p> Signup and view all the answers

    In what situation would a bond be priced higher than its initial offering due to changes in interest rates?

    <p>When comparable-term interest rates have increased since issuance</p> Signup and view all the answers

    How are contributions to an RESP treated for tax purposes?

    <p>Contributions are not tax-deductible but earnings are taxable</p> Signup and view all the answers

    How are earnings made on the funds held within an RESP treated for tax purposes when they remain within the RESP?

    <p>Earnings are tax-exempt</p> Signup and view all the answers

    When withdrawals are made from an RESP to pay for college or university studies, how are they treated for tax purposes?

    <p>Withdrawals are taxable in the subscriber's hands</p> Signup and view all the answers

    Why might using a TFSA during early savings years be preferable to making RRSP contributions?

    <p>TFSA earnings grow tax-free and can be used for various expenses</p> Signup and view all the answers

    What distinguishes contributions to an RESP from contributions to an RRSP regarding tax treatment?

    <p>Contributions to an RESP are tax-deductible, while RRSP contributions are not</p> Signup and view all the answers

    In what way do withdrawals from an RESP after post-secondary education differ in tax treatment from pre-education withdrawals?

    <p>Post-secondary education withdrawals are subject to re-capture compared to pre-education withdrawals</p> Signup and view all the answers

    What is the minimum percentage of the RRIF’s total value that must be withdrawn annually, starting the year after the RRSP holder turns 71?

    <p>5.4%</p> Signup and view all the answers

    Which of the following is NOT one of the six items to consider when making individual retirement plans as listed in the text?

    <p>How extensive are the post-retirement work-related expenses and payroll deductions?</p> Signup and view all the answers

    What tax credit can seniors qualify for upon retirement, if they receive pension or RRIF income?

    <p>$2,000 annually</p> Signup and view all the answers

    At what age does the minimum withdrawal from a RRIF reach 20% according to the text?

    <p>95</p> Signup and view all the answers

    What happens to withdrawals from a RRIF in terms of taxes according to the text?

    <p>Taxes are payable on all withdrawals</p> Signup and view all the answers

    Which of the following is NOT a major change that occurs on retirement as mentioned in the text to help maintain a retiree's lifestyle on lower pension income?

    <p>Ability to withdraw funds tax-free from a RRIF</p> Signup and view all the answers

    What advantage does pension income-splitting provide to retirees?

    <p>It reduces the total amount of tax owed by each partner.</p> Signup and view all the answers

    Why is it prudent to shift investment portfolio allocations before retirement age?

    <p>To reduce the risk of value fluctuations in the portfolio.</p> Signup and view all the answers

    What is one disadvantage of Segregated Funds compared to other managed funds?

    <p>Lower control over asset allocation.</p> Signup and view all the answers

    What is the primary purpose of pension income-splitting for couples?

    <p>To reduce the taxable income of both partners</p> Signup and view all the answers

    In what way does shifting towards fixed-income investments before retirement mitigate risk?

    <p>It reduces the impact of market volatility</p> Signup and view all the answers

    What is a key benefit of utilizing pension income-splitting for tax purposes?

    <p>Lower combined tax bill for couples</p> Signup and view all the answers

    Study Notes

    • The maximum combined OAS and GIS payment for an individual is $1,443 per month in 2017, but only if there is no other income.
    • GIS payments are not taxable, and all payments are adjusted quarterly for inflation.
    • A Defined Benefit Pension Plan provides a predetermined monthly benefit based on earnings history, years of service, and age. About 80% of public-sector employees belong to this plan.
    • A Defined Contribution Pension Plan has specified contribution levels, with the eventual benefit depending on contributions and investment earnings.
    • Vesting in a pension plan requires a minimum number of years of employment. If an employee is terminated before vesting, they may not receive the employer's contribution.
    • An open mortgage allows for partial or total payment without penalty at the borrower's discretion.
    • Travel Medical Insurance covers financial losses related to traveling and is crucial due to high medical costs abroad.

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    Description

    Test your knowledge on mortgage amortization periods, including reasons for choosing a longer period and longest period allowed in Canada. Explore the role of mortgage brokers in helping individuals seek mortgages.

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