Ontario Mortgage Agent L2 cheat sheet

FSRA licenses mortgage agents, brokers, and brokerages under the Mortgage Brokerages, Lenders and Administrators Act, 2006 (MBLAA); agents must be licensed through a brokerage and cannot deal or trade independently.

Licence classes: mortgage agent (Level 1) and mortgage agent (Level 2) require completion of the mandated education, a passing exam score, a criminal record check, and sponsorship by a licensed brokerage principal broker.

Level 2 agents may supervise Level 1 agents and deal in all residential and commercial mortgage types; Level 1 agents are restricted to mortgages from specified lender categories.

Duty of care, honesty, and good faith are statutory: an agent must disclose conflicts of interest in writing, act in the borrower's best interest when giving recommendations, and document the disclosure.

Disclosure requirements include the mortgage brokerage agreement before services, the disclosure of fees and remuneration from lenders, and the cost of borrowing disclosure before the borrower commits.

Errors and omissions insurance and FSRA financial filing obligations apply to the brokerage; agents must report licence changes, address changes, and any criminal charges to FSRA within the prescribed time.

Prohibited conduct includes holding or handling client funds without authorization, making false or misleading statements, and receiving undisclosed compensation from lenders or third parties.

Privacy obligations under PIPEDA and Ontario privacy law require consent for collection of personal and financial information and secure retention of client files.

Open mortgage: repayable in full or in part at any time without penalty; rates are higher than closed products. Closed mortgage: prepayment restricted, with a penalty calculated as three months' interest or the interest rate differential (IRD), whichever is greater.

Fixed-rate mortgage: rate and payment constant for the term. Variable-rate mortgage: rate fluctuates with the lender's prime; payment may be fixed with an adjustable amortization, or adjustable with a fixed amortization.

Insured mortgages are backed by CMHC, Sagen, or Canada Guaranty; insurable mortgages meet the insurer's criteria but are not insured; uninsurable mortgages are funded by alternative and private lenders.

Primary market: lenders originate and fund mortgages. Secondary market: mortgages are sold to investors or securitized through NHA MBS and CMB programs, which replenishes lender funds and influences pricing.

Conventional mortgage: loan-to-value at or below 80% with no default insurance. High-ratio mortgage: LTV above 80% and requires mortgage default insurance.

Home Equity Line of Credit (HELOC): revolving credit secured by home equity, typically capped at 65% LTV for the revolving portion and 80% combined with a mortgage; readvanceable products combine both.

Alternative (B-lender) products serve borrowers outside A-lender criteria: higher rates, lender fees, and shorter terms; private mortgages are funded by individual investors and are short-term bridge or equity-based loans.

Reverse mortgage: available to homeowners 55+, no required payments, interest accrues to the balance, and repayment occurs on sale or death; the loan is typically capped at 55% of appraised value.

Gross Debt Service (GDS) ratio = (mortgage principal and interest + property taxes + heating + 50% of condo fees) / gross annual income; the standard limit is 39%.

Total Debt Service (TDS) ratio = (GDS costs + all other debt payments) / gross annual income; the standard limit is 44%, with limited flexibility to 44% for insured loans at some lenders.

Stress test for insured mortgages: qualify at the greater of the contract rate plus 2% or 5.25%. For uninsured mortgages, qualify at the greater of the contract rate plus 2% or the benchmark rate.

Salaried income is verified with a letter of employment and pay stubs; self-employed income uses a two-year average of net income from T1 General returns and NOA, with add-backs for non-cash expenses.

Credit report review: beacon score, tradelines, utilization, and derogatory items such as collections, judgments, and bankruptcies; a discharged bankruptcy typically requires two years of re-established credit.

Down payment source must be verified: 90-day account history for savings, gift letter with no repayment terms for gifted funds, and equity from the sale of an existing property.

Minimum down payment: 5% on the first $500,000 and 10% on the portion above $500,000; 20% is required for purchases over $1,000,000 and for rental or investment properties.

Rental income is typically included at 50-80% of gross rents, depending on lender policy; a rental offset is an alternative treatment for existing properties.

Loan-to-Value (LTV) = mortgage amount / appraised value (or purchase price, whichever is lower). LTV drives insurance requirements, pricing, and maximum loan amounts.

Appraisal methods: sales comparison approach (residential), cost approach (unique or new construction), and income approach (commercial, based on capitalization rate).

Automated valuation models (AVMs) and drive-by appraisals may be used for low-ratio refinances; full interior appraisals are required for high-ratio purchases and many alternative loans.

The appraisal must be ordered by the lender or its agent; an agent or borrower cannot select the appraiser, and the appraiser must be independent and licensed.

Property types: single-family detached, semi-detached, townhouse, condo apartment, and multi-unit residential (up to four units qualifies as residential).

Collateral issues: zoning and permitted use, easements, right-of-way, encroachments, environmental contamination, and non-conforming or unpermitted additions reduce value and may render a property ineligible.

Market rent and vacancy rates affect the income approach; capitalization rate = net operating income / property value.

Condominium assessment includes status certificate review: reserve fund, special assessments, litigation, and management; a weak reserve fund can reduce lendable value.

The underwriting file must contain a completed application, credit report, income verification, down payment verification, property valuation, and the signed mortgage brokerage agreement.

Documentation standards: A-lender full doc, stated income (restricted), and equity-based lending; each lender defines acceptable income and down payment evidence.

Fraud red flags: altered or inconsistent documents, income that does not match the occupation, unusual deposit patterns, undisclosed debts, and identity inconsistencies across documents.

Income fraud includes fabricated pay stubs, false employment letters, and overstated self-employed income; verify with third-party sources such as employer callbacks and CRA documents.

Property fraud includes inflated appraisals, undisclosed second mortgages, and straw buyers; the title search and lender instructions must be reviewed for undisclosed encumbrances.

Identity theft prevention: verify government-issued photo ID, compare signatures, and confirm the borrower's identity through independent contact information.

Anti-money-laundering obligations under FINTRAC require client identification, recordkeeping, and reporting of suspicious or large cash transactions.

Underwriter decision outcomes: approve, approve with conditions, decline, or refer; conditions must be satisfied and documented before funding.

Payment formula: P = [r × PV] / [1 − (1 + r)^−n], where r = periodic rate (annual rate / 12) and n = number of payments. This gives the fixed payment for a fully amortizing loan.

Amortization: a longer amortization lowers the payment but increases total interest; the standard maximum is 25 years for insured mortgages and 30 years for uninsured mortgages.

Accelerated bi-weekly payments = monthly payment / 2; accelerated weekly = monthly payment / 4. These pay the equivalent of 13 monthly payments per year and shorten amortization.

Prepayment penalty (closed fixed): the greater of three months' interest or the IRD. IRD = (current rate − new rate) × remaining balance × remaining term, subject to lender formula.

Variable-rate penalty is typically three months' interest; fully open mortgages have no penalty.

Interest is compounded semi-annually, not in advance, for most Canadian residential mortgages; the effective annual rate is higher than the nominal rate.

Gross-up and qualifying rate: lenders qualify at the greater of the contract rate plus 2% or 5.25% (insured) to test affordability.

Refinance maximum is 80% LTV for a conventional mortgage; the equity take-out is the new loan minus existing encumbrances and costs.

Default occurs when the borrower fails to make a payment or breaches a covenant; the lender issues a notice of default and demand letter with a cure period before enforcement.

Power of sale is the most common remedy in Ontario: the lender sells the property without court foreclosure, subject to the Mortgages Act notice requirements and redemption period.

Notice of sale must be given to the borrower and subsequent encumbrancers, typically with a 35-day redemption period after service before the sale can proceed.

Foreclosure transfers title to the lender through the court; judicial sale orders the property sold with proceeds applied to the debt.

Collections conduct must comply with consumer protection rules: no harassment, restricted contact hours, and no misleading statements about legal action.

Default-related costs may include legal fees, appraisal, property preservation, and the lender's administration fee, which can be added to the mortgage balance.

After a power of sale, any surplus proceeds go to subordinate encumbrancers and then to the borrower; a deficiency remains the borrower's obligation unless discharged.

Credit reporting of default and the resulting beacon score impact can restrict the borrower's access to A-lender financing for years after the sale.

Commercial mortgage underwriting emphasizes the property's income: Net Operating Income (NOI) = gross rents − operating expenses; value = NOI / capitalization rate.

Debt Service Coverage Ratio (DSCR) = NOI / annual debt service; commercial lenders typically require a DSCR of 1.20 to 1.25 or higher.

Commercial LTV limits are generally lower than residential, commonly 65-75% for stabilized income properties, and loan terms are shorter with renewal risk.

Commercial loan documentation includes rent rolls, leases, operating statements, environmental reports, and a property condition assessment.

Construction and bridge financing: interest-only during the build, with advances against cost-to-complete and a take-out commitment at completion.

Specialized products include private mortgages, vendor take-back (VTB) mortgages, and equity participation or mezzanine financing for larger projects.

Multi-unit residential (5+ units) and mixed-use properties are underwritten commercially, using income approach valuation and lease review.

Commercial borrowers are assessed on business financial statements, corporate structure, guarantees, and the principals' net worth, not just personal credit.