Session 2 of 3 Mortgage Mathem Lyrics

Session 2 of 3: Mortgage Mathematics

Mortgage Mathematics

Mortgage math is focal to buyer and seller negotiations and affordability is vital to the marketplace. Increased affordability translates into more buyers capable of buying and, consequently, increasing demand. Little wonder that qualifying is focal to the sale process.

Underlying all qualification processes is a working knowledge of the mortgage market. That begins with down payments, available buyer resources, how lenders qualify prospects, and how interest is calculated. Subsequent Phases then build on this foundation by addressing mortgage products, typical features and options, payment plans, privileges, legal priorities, documentation, and advanced mortgage math, e.g., penalties, and prepayments.

Session Guide

These topics are covered in this session:

Downpayment

Loan Qualification
Expanded Calculations
Calculating Maximum Mortgage
Mortgage Interest

Calculating Simple Interest
Calculating Compound Interest
Nominal vs. Effective Interest Rate
Mortgage Payments
Averaging
Knowledge Integration

Learning Outcomes

At the conclusion of this session, students will be able to:

Outline steps involved in a__essing buyer resources, determining mortgage requirements, and a___yzing basic lender criteria for residential purchases.
Briefly discuss unique characteristics and requirements that apply to commercial mortgage qualifying.
Perform selected calculations involving gross debt service (GDS) and total debt service (TDS) ratios.
Calculate simple and compound interest.
Differentiate between nominal and effective interest rates, and unique requirements that apply to Canadian mortgages.
Perform calculations using the formula for mortgage averaging and identify significant limitations.
Perform keystrokes for the HP 10BII (or alternate calculator) in regard to interest calculations and blended mortgage payments.

MORTGAGE FINANCING
Financing involves various steps leading to a lender commitment and the advancing of funds, which typically coincides with the closing. Mortgage qualifying , central to that process, involves two primary considerations:

Downpayment
Borrower cash resources for downpayment typically represent total liquid a__ets less purchasing costs, most notably adjustments required at closing. Lenders will seek confirmation of downpayment funds.

a__ume that the buyer has liquid a__ets of $80,000 for the purchase of a $200,000 home.

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Total liquid a__ets: $80,000
Less: purchasing costs*
Land transfer tax
$1,725
Legal fees
2,000
Mortgage fees
800
Adjustments
(charged to buyer)
900
Moving expenses
800
Fund for major purchases
3,500
Total purchasing costs -9,725
Amount remaining for downpayment $70,275
*For illustration purposes only. Actual costs will vary.

Liquid a__ets Less Purchasing Costs

Housing Focus

Affordability Index

Source: Statistics Canada, Royal LePage, RBC Financial Group

Loan Qualification
Gross Debt Service (GDS) Ratio Maximum percentage of borrower's gross income to be allocated to principal, interest and tax payments (PIT). GDS may include heating costs (PITH). CMHC financing is based on 32% GDS involving PITH. GDS is typically 27 - 32%.

Buyer Johnson's Income $50,000
Lender Inc. GDS Ratio 30%
Maximum PIT Payment (50,000 x .30) $15,000
Annual Taxes (T) on Property -1,500
Remaining PI Payment Available $13,500
Maximum Monthly PI Payment Available $1,125
If Johnson requires a $140,000 mortgage at 6.5%, the payment is:

6.698238* x $140(000) = $937.75

Jones meets Lender Inc.'s GDS requirement.

Using the GDS Ratio

Total Debt Service (TDS) Ratio: GDS plus other debt. TDS is typically 37-40%.

Buyer Johnson's Income $50,000
Lender Inc. GDS Ratio 37%
Maximum PIT & Other Debt Payment (50,000 x .37) $18,500
Annual Taxes (T) on Property -1,500
Other Debts (annual payments) $-4,500
Remaining PI Payment Available $12,500
Maximum Monthly PI Payment Available ($12,500 ÷ 12) $1,042
If Johnson requires a $140,000 mortgage at 6.5%, the payment is:

6.698238* x $140(000) = $937.75

Jones meets Lender Inc.'s GDS requirement.
Using the TDS Ratio
Expanded Calculations
Both GDS and TDS formula can a__ist in various circumstances as the following GDS examples illustrate.

Calculating Loan Payments

Buyer Jones' income is $55,000.
Lender Inc. requires a 30% GDS.
Loan Payments (PIT) = GDS x Buyer Income

= $55,000 x .30
= $16,500

Calculating GDS

Buyer Jones' income is $65,000.
Yearly principal, interest and tax payments estimated at $20,960.

GDS = Loan Payments (PIT)
Buyer Income
= $20,960 ? $65,000
= .32246 or 32.25%

Calculating Required Income

Annual PIT payments are $29,000.
Lender Inc. requires a 30% GDS.

Buyer Income = Loan Payments (PIT) / GDS
= $29,000 / .30
= $96,700 (rounded to the nearest $100)

Note:
This algebraic variation of the basic GDS formula is only valid if exact costs are known.

GDS/TDS ratios are not the sole determinants of buyer qualification. Other factors include type of property, buyer credit check, and specific lending policies, which are addressed in subsequent Phases.

CALCULATING
MAXIMUM MORTGAGE

Market memo

Interest Rates and Affordability

Mortgage interest rates impact GDS and TDS ratios. The lower the interest rate, the higher number of people who can afford to own. Every time interest rates drop (a__uming house prices and wages remain stable), more consumers potentially enter the real estate market. Further, progressively more expensive homes can be bought for the same monthly payment.

Consumer-friendly mortgage rates can even help offset rising house prices. During 2002, for example, average home price increases in some metropolitan centres ranged between 6% and 8%, but short-term mortgage rate reductions were proportionately even steeper. High consumer confidence, rising prices, and lower costs heat up real estate markets.

But, what happens if a downturn occurs and thousands seek to lock in mortgages. Does the pendulum swing the other way? Credit booms have diminished such concerns, but past memories of high interest rates linger in many consumer minds.

Perspective

Surfing the Net

These days sharp buyers don't trudge from one lender to the next and you shouldn't either. The Internet provides numerous sites ranging from basic mortgage terms to creative financing products, interest rate trends and handy calculators. Some sites even come with downloadable shareware to custom design payment arrangements.

Mortgage products also have been revolutionized. Lenders have abandoned strategies once dominated by one mortgage fits all marketing. An explosion of options and incentives face prospective buyers. The shrewd consumer can collect reward miles, while negotiating cashbacks. Flexibility is also mainstream. Want to gamble on rate fluctuations? Look at short term open with lock in provisions. Just read the fine print carefully?flexibility often comes with a price tag.

Study Links

Encyclopedia

Mortgage Financing:
Basics of Mortgage Financing (Residential)
Commercial Requirements
Gross Debt Service Ratio
Total Debt Service Ratio
Mortgage Payment Factors

Basics of Mortgage Financing (Residential)
Application

Most applications are designed to elicit information about the financial ability of the applicants and the property value/marketability. The lending institution may ask for a standby or processing fee. Standby fees are commonly related to non-residential transactions and represent a payment to guarantee a specified set of mortgage terms (e.g., the interest rate), for a defined period. Application fees are more commonly found in residential mortgages. Whether or not the fee is refundable and under what circumstances a refund would be made will vary by individual lender.

Once the offer is accepted, the application is forwarded to the lender. Several items normally accompany the application: namely, proof of income, a copy of the agreement/contract, copy of the listing, payment for processing costs (administration fee), confirmation of downpayment, and any other documentation that will support information included on the mortgage application.

Appraisal and Credit Check

The lender reviews the application, applies GDS and TDS ratios, and considers the stability and future prospects regarding the income stream as well as personal/financial information of the applicant. An appraiser or bank representative typically inspects the property to ensure that it meets lender criteria and determines lending value. In some instances, automated valuation systems are used to establish value. Residential appraisal reports normally include both direct comparison and cost approaches, and are prepared on standard formats approved by the lender.

A credit check is usually performed to verify financial stability of the applicant. Persons (institutional or private lenders), completing a credit check, must comply with the provincial statutory provisions regarding such matters.

Commitment

The mortgage commitment is usually a letter from the lender agreeing to make the loan subject to satisfactory t__le and other conditions that the commitment may specify. See Mortgage Commitment for limiting conditions and other requirements.

Unfortunately, instances have occurred where individuals have mistakenly believed that a letter from a lender simply quoting the loan amount they would consider, if a property was purchased, was a commitment. This is not so, as most institutions currently financing a property would require a formal signed application and other supporting materials. Such letter is merely a letter of intent and has little, if any, legal stature and should never form the basis for removal of a mortgage condition in an agreement/contract, or be the basis for a buyer not requiring an appropriate condition when an offer is drafted.

Listing, Offer, and Acceptance

While financing methods on a sale will vary from one brokerage to another, certain common patterns emerge in most transactions subject to particular variances at a local level.

At the point of listing, the maximum amount, interest rate, and even the source of funds for any new mortgage will be partially dictated by the type, location, and value of the property.
*

The financial circumstances of the buyer must be a__essed. The downpayment provides an indication of probable financing requirements, and information as to the buyer's income, obligations, stability, and future prospects of income stream will a__ist in determining the payments that the buyer can afford. Many sales representatives prefer that the buyer complete mortgage application forms before viewing property, to determine the amount of financing required.
*

Prior to preparing any offer, the buyer should have received pre-approval, or the salesperson might have a mortgage professional:
o

Qualify the buyer financially;
o

Predetermine the type and amount of new mortgage necessary;
o

Predetermine the probable interest rate, payments, term, and special privileges for the mortgage;
o

Predetermine the lender who will be approached;
o

Predetermine the amount of time that will probably be involved to arrange a mortgage;
o

Predetermine the expenses involved in arranging a mortgage; and
o

Predetermine the probability that the mortgage will be arranged.

The buyer's ability to arrange financing is vital for protection of the seller, who, in accepting an offer, will effectively take the property off the market on the risk that this mortgage can be arranged for the buyer within the specified time limit.

Pre-Approved Buyer

The buyer usually visits his/her mortgage broker or lending institution and, after discussion/disclosure of financial position, receives a pre-approval certificate, outlining the maximum amount that can be borrowed, the interest rate to be charged, and the monthly payments. The approval is subject to a satisfactory appraisal of any house being purchased and confirmation of taxes. The interest rate is normally guaranteed for a 60-90 day period and the monthly payment is based on an estimate of taxes. In condominiums, common expenses are also estimated. The offer should be conditional on the lender approving the property, arranging a satisfactory appraisal, and any other conditions spelled out in the pre-approval document.

The terms pre-approved and pre-qualified may not have the same meaning from the lender's perspective. Take the time to read the exact terms of the certificate carefully.

Gross Debt Service Ratio

(see also Total Debt Service Ratio)

Acronym: GDS

A ratio based on income in relation to mortgage payments that is used by a lender to qualify a prospective buyer for a mortgage.

Total Debt Service Ratio

(see also Gross Debt Service Ratio)

Acronym: TDS

The ratio of annual (or monthly) mortgage charges for principal, interest, and taxes, plus payments on various other debts (normally bank and finance company loans etc.), compared with gross income of the borrower. The TDS ratio should be clearly differentiated from the gross debt service ratio that is calculated based on principal, interest, and taxes only.
Application

Most lenders require an applicant to meet a particular TDS ratio, in addition to the GDS ratio. As with GDS, required TDS ratios vary from lender to lender but most are in the range of 35% to 40%.

TDS Ratio = (PIT + Loan Payments) ÷ Income

The use of total debt service has become increasingly important with the rise in consumer borrowing and special purpose loans. Lenders are concerned that commitments over and above the mortgage payment may cause the applicant to default at some future date. To protect their interest, lenders consider the applicants total financial picture during the loan qualifying process as opposed to qualification based solely on principal, interest, and taxes.

Mortgage Payment Factors

Mortgage payment factors per $1,000 of mortgage amount are provided for selected interest rates and amortization periods based on weekly, biweekly, semi-monthly, and monthly payments. See the Appendix.

MORTGAGE INTEREST

Calculating Simple Interest
Charged at specific time periods, usually expressed as an annual rate.
Simple interest is calculated based solely on principal outstanding.
Calculating Simple Interest

Calculating Compound Interest
Interest charged at specific intervals: e.g., daily, weekly, monthly, and quarterly.
Compound interest earned during each period is reinvested and continues to earn interest.
Interest calculated on a combination of outstanding principal and interest for each compounding period.
For the Calculator User
See the HP 10BII Owner's Manual for compounding interest.

Example: Compound Interest

If the remaining months were calculated, by the end of month 12, the amount owing would be $11,268.25. The compounding has generated a higher return for the lender in this example:

$11,268.25 - $10,000 = $1,268.25 or 12.68%
Nominal vs. Effective Interest Ratet
The nominal interest rate is the stated (named or face) rate, i.e., 12%. The effective interest rate takes into account any compounding, i.e., 12.6825 or 12.68%. (See previous example.)
Effective Rates and Canadian Mortgages
The federal Interest Act states that mortgage interest must be calculated (calculated is synonymous with compounded), annually or semi-annually not in advance. Practically all lenders use semi-annual. The statute sets out various requirements.

The semi-annual effective rate cannot be more than one half of the stated annual rate.
Interest must be calculated as owing at the end of the compounding period.
The two interest periods for the year must have equivalent interest rates.
Mortgage payment factors (Encyclopedia Appendix) reflect requirements of the Interest Act.

Mortgage Payments
Most mortgages involve blended payments of principal and interest.
The longer the amortization, the lower the payment, the more interest paid - all other things being equal.
Mortgage term and amortization are rarely identical for residential mortgages. Typically the term is five years or less with the amortization being normally 20 to 25 years.
Mortgage Payment Factors

Monthly, semi-monthly, bi-weekly, and weekly mortgage payments can be calculated using mortgage payment factors (located in the Real Estate Encyclopedia, Appendix).

Curiosity

For the Inquisitive Mathematician

The formula underlying compounding interest calculations is:

A = P (1 + i)n, where:

A = Compounded Amount
P = Principal (original) Amount
1 = A unit of value (the number one)
i = Interest Rate per period
n = Number of periods-expressed as a power

Using the previous example:

A = $10,000 (1 + .01)12
= $10,000 (1.126825)
= $11,268.25 (principal and interest)

Note: If the number 1 is subtracted from the compounded interest factor and then multiplied by the principal, the formula calculates the interest only. ($10,000 x .126825 = $1,268.25)

An abbreviated version of the formula can be used to calculate only the rate of interest:

R = (1 + i)n - 1
R = (1 + .01)12 - 1
R = 1.126825 - 1
R = .126825
R = 12.68%

session 2:
Using the HP 10BII
The HP 10BII's time value of money (TVM) functions can be used to calculate blende41d mortgage and amortization details. This section provides a summary of functions involved in mortgage payment calculations. Review Chapter 5 of the HP 10BII User's Guide for detailed TVM information and step by step examples.

To Store a Value

Key in the number and select the appropriate variable key. For example, if the present value (PV) of the mortgage (the amount being loaned) is $100,000, then pressing 100000 stores the value $100,000 as the present value of the mortgage or loan. To store a negative value, key in the number and press the change sign b___on . Once stored, the number is not removed until it is replaced with another value or cleared by pressing . Press followed by the appropriate variable to review a stored number.

To Calculate a Value

For TVM calculations, at least four of the following five variables must be stored in order to perform a TVM calculation:

If no future value (FV) or present value (PV) is stored, the amount is automatically deemed to be zero. The number of payments per year only needs to be changed as required, and defaults to 12 payments per year. Store all known amounts in the appropriate variables, and press the b___on of the variable that you want to calculate.

For example, to calculate a mortgage payment:

Store , ,and ( is a__umed to be zero unless you change it).
Press to calculate the mortgage payment.
Total number of payments, expressed in years, months, or days.
Nominal annual interest rate as a percentage.
The initial cash inflow (loan/mortgage amount) or outflow (initial investment).
Amount of each periodic payment. The payments are the same and no payments are skipped.
Amount of the final cash flow/compounded value of the series of previous cash flows. For a fully amortized mortgage the FV is zero (i.e., no amounts remain outstanding).
This orange b___on is the shift b___on, and is used to access functions that are displayed on the calculator in orange. To use an orange coloured function, press before pressing the appropriate orange function b___on. For example, to clear all stored values, press . Pressing only clears the display and does not clear any stored numbers.
Stores the number of periods per year (the default is 12). The setting for number of payments per year is shown each time is pressed.
Optional shortcut for storing N-the number in the display is multiplied by the value in , the result is stored in . For a 25-year mortgage with monthly payments, pressing 25 stores the value 300 in .
Toggles between BEGIN and END mode. Set to BEGIN mode if payments occur at the beginning of each period, otherwise choose END mode. Canadian mortgages are calculated using END mode.
Accesses the amortization functions to determine outstanding principal, interest, and mortgage balance at any point through the term of the loan.

Canadian Mortgages
Canadian mortgages are unique in that the interest in the blended monthly payments is compounded semi-annually, not in advance. Since payments are made monthly, yet interest is compounded semi-annually, an interest rate conversion is required prior to using the time value of money functions of the calculator. This example outlines all steps necessary to calculate blended monthly mortgage payments.

Example

Calculate the monthly payment required to fully amortize a $150,000 mortgage with 25-year amortization, and an interest rate of 6.5% compounded semi-annually, not in advance.

TASK 1 CLEAR ALL VARIABLES & CHECK MODE KEYSTROKES DISPLAY
Clear all previously stored variables 0.00
Check display for mode. If BEGIN is shown,press to switch to END mode. All Canadian mortgages are calculated using END mode (calculator default, indicated by blank display)

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TASK 2 ADJUST THE INTEREST RATE FOR SEMI-ANNUAL COMPOUNDING KEYSTROKES DISPLAY
Enter the nominal rate and press 6.5 6.50
Enter the number of compounding periods in a year and press 2 2.00
Solve for the effective rate by pressing 6.61
Enter the number of payment periods in a year and press 12 12.00
Solve for the adjusted nominal rate by pressing 6.41
This last step automatically stores the adjusted nominal rate (6.41) as

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TASK 3 IDENTIFY KNOWN VARIABLES
N = 25 years x 12 payments/year = 300
PV = $150,000
I/YR = 6.41
FV = 0

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TASK 4 STORE VALUES & CALCULATE PAYMENT KEYSTROKES DISPLAY
Store the value for the amortization period of the mortgage 300 300.00
Store the present value of the mortgage 150000 150,000.00
Calculate the monthly payment -1,004.74
The monthly payment for this mortgage is $1,004.74.

HP 10BII Canadian Mortgage Calculations

Note:

The calculator shows a negative payment amount because a payment is considered a cash outflow.
The future value is automatically stored as zero unless changed. The interest rate was already stored in I/YR from Task 2.
The value for N could have been entered by pressing 25 .
At this point any variable could be changed and the terms recalculated or an amortization schedule produced.

Averaging
Mortgage averaging is best described by example. Buyers may debate whether to a__ume existing or arrange new financing.

Study Links

Encyclopedia

Simple Interest
Compounding
Compound Interest
Effective Interest Rate
Nominal Interest Rate
Interest Act
Mortgage Mathematics:
Amortization
Averaging
Fully Amortized Loan
Mortgage Payments/Amortization
Simple and Compound Interest

Simple Interest

Interest payable for a specified period of time at a given rate with no compounding and based on the following formula:

P x R x T = i

P= Principal Owing R=Rate of Interest Charged T= Length of Time I=Interest Payable On Principal
Application

Short term financing may involve simple interest in which interest is due and payable coincident with the term and no compounding takes place, e.g., a small personal loan secured from a private investor. Established lenders rarely have simple interest products, preferring the higher return a__ociated with compounding.

Compound Interest

Interest charged on the initial principal for the current period for monies borrowed, and also on interest amounts accrued from previous periods. With compound interest, interest is charged at specified intervals (e.g., monthly, daily, quarterly).

When expressed as a formula, the calculation for simple interest is as follows:

P(Principal) into I(Interest Rate) into N(Time Period) = I(Interest)

P x i x n = I

In the case of compound interest, interest is charged at a specified time interval (e.g., monthly, daily, quarterly) with the result that:

Each time period, the original sum is reinvested and continues to earn interest.
*

The interest earned during each period is reinvested and also continues to earn interest.

The equation to determine the compound amount (principal and compound interest), at a particular time is:

A = P(1+ i)n

where :

A Compound Amount

P Principal Amount

1 Represents a unit of value

i Interest Rate per compounding period

n Number of time periods (e.g., squared, cubed, etc.-expressed as a power)

Effective Interest Rate

(see also Mortgage Mathematics)

The true rate of interest charged on a loan.
Application

The stated or nominal interest rate is most commonly discussed in the marketplace and normally refers to the interest rate charged on a loan without consideration for any compounding that occurs during the time period. If no compounding takes place, the stated (or actual) and effective rates would be the same. The effective rate takes into consideration the impact of compounding and consequently produces a higher, true rate of interest.

Effective rates are particularly important in relation to mortgages. For real estate practitioners, most discussions with consumers concerning mortgages centre on the nominal or stated rate. As with all loans in which compounding occurs, the effective rate is higher than the stated rate. However, the Interest Act sets out specific requirements concerning how the effective rate is calculated on mortgages involving blended monthly payments. The federal statute dictates that if a mortgage has blended principal and interest payments, the interest must be calculated annually or semi-annually, not in advance. The net effect of this requirement is to reduce the effective rate through no more than two compounding periods per year and such compounding cannot be calculated in advance.

Without delving into the complexities of calculating semi-annual not in advance payments, a simple example using a personal loan will illustrate the difference between nominal and effective rates. If an amount is compounded on an annual basis, the nominal and effective rates are the same. However, when compounding occurs more frequently, the effective rate rises above the nominal. In the example, the difference is 0.25%.

Nominal Interest Rate

(see also Mortgage Mathematics and Effective Interest Rate)

The stated rate of a loan, which may differ from the true rate of interest paid due to compounding within the loan term.

Interest Act

A federal statute impacting interest rates charged and related matters including interest on monies secured by a mortgage of real property. The Act affects methods for calculating mortgage interest and also imposes limitations on the interest amounts charged. Selected sections are highlighted.

Section 2 Interest Charged

The Act places no restrictions on the rate of interest or discount agreed on by the parties, except as provided by any other statute. The Unconscionable Transactions Relief Act in Ontario, for example, applies to loans involving real estate. This Act provides the Court with powers to give borrowers relief from excessively harsh rates, e.g., relieving the mortgagor from making such payments or ordering the mortgagee to repay amounts deemed excessive, annul the agreement, or otherwise alter the mortgage terms. The Court will take into consideration risk a__ociated with the loan. A high rate, in itself, may not result in a favourable decision for the borrower. The rate must be clearly excessive and unwarranted.

Section 347 of theCriminal Codealso states that interest charged at a criminal rate is an offence leading to a fine and/or imprisonment. A criminal rate, defined in Subsection 347 (2), exceeds sixty per cent on credit advanced under an agreement or arrangement [including a mortgage].

Section 3 No Interest Rate

Where no interest rate appears, the rate is deemed to be five percent.

Section 4 When Annual Rate Not Stipulated

Loans with interest terms expressed per day, week, month, or at any rate less than a year must not exceed 5% unless the equivalent yearly rate is clearly stated (mortgages are excluded under this Section).

Section 6 Blended Payments

This section provides that no interest can be charged on any part of the principal money advanced when the payments are blended, unless the mortgage contains a statement showing the principal amount and the rate charged, calculated yearly or half-yearly, not in advance.

The Act contemplated potential borrower confusion as a blended payment could conceal the true interest rate being charged. Legal debates have identified certain difficulties in determining exactly what constitutes a blended payment and what is meant by interest within this section. Practitioners should take comfort that the vast majority of mortgages rigidly follow both the wording and spirit of this provision.

Notwithstanding debated shortcomings of Section 6, further protection is afforded consumers at both the federal level (e.g., cost of borrowing regulations under theBank Act), and the provincial levels (e.g., the Mortgage Brokers Act), which require cost of borrowing disclosures for mortgages.

Section 10 Right to Redeem

Section 10 of the Interest Actprovides that the borrower may pay off a mortgage with a term of more than five years, after five years has passed in the mortgage term. This right is subject to the mortgagor paying three months' interest. A similarly worded provision is found in Section 18 of the Mortgages Act(Ontario).

Practitioners should be clear as to the intent of this provision. If a mortgage is originally drawn for five years or less and renewed or in some way extended beyond the five year period, this right to redeem subject to interest penalty does not apply even though the mortgagee/mortgagor relationship now exceeds five years. The date of renewal or extension establishes a new start date for the five-year provision.

Section 11 Exceptions to Section 10

Section 11 excludes any mortgage on real property given or debenture issued by a joint stock company or other corporation from provisions set out in Section 10.

Amortized Mortgage

A mortgage loan in which the principal and interest are repayable in monthly or other periodic installments during the loan period

Amortization
From Wikipedia, the free encyclopedia
Amortization or amortisation is the process of decreasing or accounting for an amount over a period of time. Particular instances of the term include

knowledge kntegration

Notables

Residential mortgage financing typically involves submitting an application, completing an appraisal and credit check, and mortgage commitment.
Commercial requirements usually involves additional information, e.g., feasibility reports and income/expense a___ysis.
GDS and TDS ratios vary by lender. GDS ranges are normally from 27 to 32% with TDS from 37 to 40%. Heating costs and condominium fees may be included in the calculation.
Simple interest is calculated solely on the principal outstanding.
Compound interest is charged at specific intervals, interest earned is reinvested, and calculation includes both outstanding principal and interest for each compounding period.
A nominal rate is the stated rate; an effective rate takes into account the impact of compounding.
Special requirements of the Interest Act apply to Canadian mortgages.
Amortization is the time required to completely retire a mortgage debt through scheduled principal and interest payments, while term is the length of time that money is borrowed.

Glossary

Affordability Index
Amortization
Blended Payment
Compound Interest
Effective Interest Rate
Gross Debt Service (GDS) Ratio Mortgage
Mortgage Averaging
Mortgage Payment Factor
Mortgagee
Mortgagor
Nominal Interest Rate
Principal Amount
Simple Interest
Term
Total Debt Service (TDS) Ratio

Web Scans

Royal Bank of Canada (Housing Affordability Index)

Strategic Thinking

How long does it take to obtain a mortgage commitment and what procedures must be followed with various lenders?
What type of information is available from local lenders that would be useful as handout information to potential buyers?
How does affordability affect the local marketplace and what current trends are developing?
What GDS and TDS ratios are used by lenders within the local market area?
Can I easily and quickly perform mortgage payment calculations using the HP 10BII (or other selected calculator)?
Can I explain in simple terms how Canadian blended payment mortgages are calculated to a buyer or seller?