Ontario Mortgage Broker flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Principal broker

The licensed mortgage broker designated by a brokerage to be responsible for its supervision, compliance, and trust accounts, and accountable to the regulator for the brokerage's conduct.

Mortgage agent

A licensed individual who may deal in mortgages only under the supervision of a mortgage broker at the same brokerage, and who cannot act independently or for another brokerage.

Mortgage brokerage licence

The licence held by the business entity through which mortgage agents and brokers deal in mortgages; compensation must flow through this licensed entity.

Record retention period

Licensees must keep records of dealings, disclosures, and complaints for at least six years after creation or discharge, and produce them to the regulator on request.

Open mortgage

A mortgage that may be repaid in full or in part at any time without a prepayment charge, typically carrying a higher interest rate than a closed mortgage.

Closed mortgage

A mortgage that restricts prepayment to stated privileges, with a charge (often three months' interest or the interest rate differential) on excess repayments.

High-ratio mortgage

A mortgage with a loan-to-value above 80 percent, requiring default insurance whose premium is usually added to the mortgage balance.

Home equity line of credit

A revolving credit facility secured by the home, allowing the borrower to draw and repay funds up to a limit, often combined with an amortizing mortgage.

Reverse mortgage

A mortgage for borrowers 55 and older requiring no regular payments, with interest accruing until the home is sold or the borrower moves out or dies.

Bridge financing

Short-term secured credit that covers the gap between closing a purchase and receiving proceeds from the sale of the borrower's existing home.

Gross debt service ratio

Housing costs (principal, interest, taxes, heating, and half of condo fees) divided by gross annual income, generally capped near 32 percent for insured loans.

Total debt service ratio

All housing costs plus other debt payments divided by gross annual income, conventionally capped at 40 percent for insured mortgages, with lender limits often to 44 percent.

Stress test rate

The qualifying rate for insured mortgages, equal to the greater of the contract rate plus two percentage points or the regulator's benchmark rate.

Loan-to-value ratio

The mortgage amount divided by the lesser of the purchase price or appraised value, expressed as a percentage and used to determine insurance requirements.

Self-employed income verification

Verification typically requiring two years of notices of assessment and T1 generals, with alternative documentation only where the lender's program permits.

Gifted down payment

A down payment provided by an immediate family member, documented by a signed gift letter and evidence of transfer, with no repayment obligation.

Amortization versus term

Amortization is the total period used to calculate payments; term is the length of the current contract, after which the mortgage renews.

Semi-annual compounding

Canadian fixed-rate mortgages compound interest semi-annually by law, so the periodic rate must be converted before calculating monthly payments.

Periodic rate formula

i = (1 + r/2)^(2/m) - 1, where r is the nominal annual rate and m is the number of payments per year, reflecting semi-annual compounding.

Mortgage payment formula

P = A x i / (1 - (1+i)^-n), where A is principal, i is the periodic rate, and n is the total number of payments.

Interest rate differential

A prepayment charge approximating the lender's lost interest, calculated from the difference between the contract rate and the current rate for the remaining term.

Three months' interest charge

A common prepayment charge equal to the outstanding balance multiplied by the annual rate and by three-twelfths.

Outstanding balance formula

B = A(1+i)^k - payment x ((1+i)^k - 1)/i, giving the balance remaining after k payments at periodic rate i.

Effective annual rate

The true annual cost of borrowing after accounting for compounding frequency and fees, used to compare mortgage products on a common basis.

Fiduciary duty

A licensee acting for a borrower must act in the borrower's best interest, disclose conflicts, and not accept undisclosed compensation from any party.

Informed consent

The borrower must receive written disclosure of rate, term, payment, amortization, prepayment terms, and all fees before committing to the mortgage.

Suitability assessment

The licensee's documented evaluation that the recommended mortgage meets the borrower's needs and circumstances, especially for private or high-cost products.

Conflict of interest disclosure

Written disclosure of referral fees, ownership interests in a lender, or personal interest in the property, made before the borrower commits.

Confidentiality obligation

Personal and financial information may be used only for the purpose collected and may not be disclosed without consent or as required by law.

Mortgage fraud indicators

Warning signs such as unsupported income, undisclosed secondary financing, non-arm's-length purchases, and pressure to close quickly, which must be reported.

Complaint handling procedure

A written brokerage process for receiving, investigating, and resolving complaints, with records retained and unresolved matters escalated to the regulator.

Independent legal advice

Advice from a lawyer with no interest in the transaction, recommended for private mortgages and related-party or complex transactions.