Chapter 2: Basic Mortgage Concepts
1. Discuss the difference between a mortgage and a car loan.
A mortgage is a loan secured by real property while a car loan is a loan secured by registering a loan against the car under the Personal Property Security Act. The difference is the security.
2. There are two mortgages registered against the title of
Barbara’s property. One was
registered on May 20, 2006 and the other was registered on March 17, 2005. Which is the 1st mortgage and which is the 2nd?
The mortgage registered on the property on March 17th is classified as a 1st mortgage since it was registered first.
3. Jonathan owns a house valued at $250,000 with a current 1st
mortgage that has a balance of $190,000. Jonathan has credit card debts of $12,500 that he wishes to consolidate
by increasing his first mortgage. Would Jonathan require a conventional or high ratio mortgage?
The total amount of the new mortgage would be $202,500. By dividing this amount into the property value of $250,000 the Loan to Value would equal 81%. Jonathan would be obtaining a high ratio mortgage since this type of mortgage is considered an amount in excess of 80% Loan to Value
4. Describe the purpose of the Charge/Mortgage.
The Charge/Mortgage is a document that illustrates the charge registered against the property. A Borrower receives a copy of this document on closing and it is proof that a loan has been made using his or her property as security.
5. Name and describe three of the main Borrower obligations
under a mortgage contract.
When a Borrower pledges his or her real property as security for a loan by placing a mortgage on that property, he or she has several basic obligations.
Repay the loan
The Borrower agrees to repay the loan based on the payment schedule outlined in the contract. Failure to do so results in the Borrower deemed to be in default or in contravention of the terms of the mortgage contract.
Insure the property
The Borrower agrees to keep adequate property insurance on the property to protect the Lender from losing his or her security due to a fire or other covered risks. If the Borrower fails to keep insurance on their property, the Lender will consider him or her in default.
Maintain the property
The Borrower agrees to keep the property in good saleable condition including repairing any portion of the property that requires it. Failure to do so will result in the Lender considering the Borrower to be in default.
Not to commit waste
Waste is a legal term which includes actions or conduct that could result in damage to the property or a loss of property value. Committing waste will result in the Lender considering the Borrower to be in default.
Pay the property taxes and, if applicable, condo maintenance fees
Failure to pay these items may result in the Lender considering the Borrower to be in default.
Follow the terms of the Standard Charge Terms
The Standard Charge Terms is a document that makes up the bulk of the mortgage contract. It is vital to understand that the Borrower, while at the Lawyer’s signing the final documentation to register the mortgage, signs acceptance of the Standard Charge Terms. What many Borrowers fail to realize is that they have Standard Charge Terms on their mortgage and that they outline the rights and responsibilities of the Borrower. Contravention of the terms of this document is considered default and the Lender can exercise its rights, which the Borrower agrees to, that are found in this document.
6. Every mortgage comes with a set of Standard Charge Terms. Discuss the purpose of this document and its importance in the mortgage
transaction.
The Standard Charge Terms make up the bulk of the mortgage contract. They contain detailed information on the Borrower’s obligations and the remedies available to the Lender if the Borrower does not meet these obligations. This document is completed by the Lender and must be registered with the Director of Titles under the Land Titles Act.
Many Lenders’ Standard Charge Terms can be viewed at www.teraview.ca/ereg/ereg_fidocs.html