Mortgage Mathematics and Financial Calculations
Payment mechanics
Candidates must be able to compute or interpret mortgage payments, amortization schedules, and interest accrual. Payments are typically blended principal and interest. Canadian fixed-rate mortgages generally compound semi-annually, not monthly, and the payment period rate is derived from the nominal rate. Know how to convert a nominal rate to an effective annual rate and to a per-payment rate.
Key calculations
Loan-to-value is loan amount divided by property value. GDS and TDS are ratio calculations. Prepayment penalties require comparing three months' interest with the interest rate differential. The interest rate differential approximates the lender's lost interest: (contract rate minus current rate) times remaining balance times remaining months, divided by twelve, subject to the lender's posted formula.
Traps
The most common errors are using the wrong compounding assumption, mixing monthly and annual figures, and forgetting that a larger down payment reduces both the loan and the insurance premium. Another trap is treating the posted rate as the qualifying rate, or ignoring that penalty calculations use the lender's posted rate discount rather than the contract rate alone.
Worked example
A $400,000 mortgage at 5% compounded semi-annually over 25 years. Convert to an effective annual rate: (1 + 0.05/2)^2 − 1 = 5.0625%. The monthly rate is (1.050625)^(1/12) − 1 ≈ 0.4124%. With 300 monthly payments, the payment is approximately $2,325. A rough check: at 5%, interest alone is about $1,667 in month one, so most of the early payment is interest - a useful sanity test for any answer.
Rule of thumb
Always state your compounding assumption, keep units consistent, and check whether the answer is plausible given the interest-only cost in the first month.
Professional Conduct, Ethics and Consumer Protection
Duties to clients
Brokers and agents owe duties of good faith, honesty, and fair dealing. They must act in the client's best interest, disclose conflicts of interest, avoid misleading representations, and protect confidential information. Suitability requires understanding the borrower's needs and circumstances and recommending products that fit - not merely the product with the highest commission. Dual agency and conflicts arising from referral arrangements require clear disclosure and, in some cases, avoidance.
Consumer protection
Know the cooling-off and disclosure protections, the prohibition on unconscionable or misleading practices, and the rules on advertising and representations. Consumers must receive required disclosures in plain language, including the cost of borrowing and the terms of the mortgage. Privacy obligations under applicable law govern collection, use, and retention of personal information.
Ethical traps
Questions test whether you prioritize the client over the deal. Common traps include recommending a product that benefits the broker, failing to disclose a referral fee, pressuring a borrower into a high-ratio or private product without explaining risks, and acting for both sides without consent. Another trap is accepting a fee from a lender without disclosing it to the borrower.
Worked rule of thumb
Apply the disclosure-and-consent test: if a reasonable client would want to know something that could affect their decision, disclose it in writing and obtain informed consent. If a conflict cannot be managed by disclosure, decline the engagement.
Conduct and discipline
Understand that FSRA may investigate and impose penalties, and that conduct breaches can affect licensing. Record-keeping supports both compliance and defence. Ethical conduct is not separate from compliance - it is the standard against which compliance is judged.