Mortgage Products, Lenders, and the Primary/Secondary Market
Products and Lenders
Understand open versus closed mortgages, fixed versus variable rates, hybrid products, home equity lines of credit, second charges, bridge financing, and construction draws. Know high-ratio versus conventional lending, default insurance requirements, and the role of insurers such as CMHC, Sagen, and Canada Guaranty. Distinguish chartered banks, credit unions, monoline lenders, trust companies, private lenders, and mortgage investment corporations by funding source, underwriting flexibility, and pricing.
Primary and Secondary Markets
The primary market is where mortgages originate between borrower and lender. The secondary market is where existing mortgages or pools are sold - for example, securitization through NHA mortgage-backed securities or lender portfolio sales. Understand that securitization affects lender liquidity and pricing but does not change the borrower's contractual obligations.
Traps in Exam Questions
Questions often test whether a product feature is a legal requirement or a lender policy - for example, prepayment privileges are contractual, not statutory. Watch for confusion between default insurance (protects the lender) and mortgage life insurance (protects the borrower or family). Another trap is assuming private lenders are unregulated; they may lend, but brokering to them still requires licensing. Also watch for the difference between a HELOC and a re-advanceable mortgage.
Rule of Thumb
Match the product to the borrower's risk profile: shorter terms and variable rates suit borrowers who can absorb payment volatility; longer fixed terms suit those needing certainty.
Worked example: A borrower with a 10% down payment needs default insurance; the premium is added to the loan and increases the amortized balance, so the effective loan-to-value exceeds the original 90%.