C2 M5 The Financial Aspects Buying and Selling Process and The Role Third Party Professionals Print V1

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Module 5: The Financial Aspects of the Buying and Selling Process and the
Role of Third-Party Professionals
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Module 5: The Financial Aspects of the Buying and Selling Process and the
In this module, you will learn about various expenses incurred by a seller and a buyer in a real estate transaction.
You will also learn about the types of services provided by third-party professionals, your obligations when you
refer a seller or a buyer to them, and why it is important to suggest to sellers and buyers that they obtain advice
from these professionals. Lastly, you will learn when to suggest that a buyer contact a mortgage specialist, and you
will gain some insight into mortgage essentials.
As a salesperson, in your effort to provide conscientious and competent service, you should be able to understand,
explain, and answer the general questions you receive from sellers and buyers on the financial aspects of the real
estate transaction. Possessing this knowledge will help you complete your due diligence, strengthen your
relationships with sellers and buyers, and build your professional reputation.
To check your understanding of this module, you must complete all the activities in the online module.
While navigating through the online module, click the Legislation button to view laws and regulations related to
this module.
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or visit the Module Resources to find the list of all the KMS assets for this module.
The contents of the thumbnail icon and References from the module are added to support your learning throughout
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Menu: The Financial Aspects of the Buying and Selling Process and the
Number of Lessons 6 Lessons
Lesson Number Lesson Name

Lesson 1 Expenses for Sellers and Buyers
Lesson 2 Mortgage Essentials
Lesson 3 Mortgage Approval and Mortgage Specialists
Lesson 4 Role of Lawyers and Other Third-Party Service Providers
Lesson 5 Summary Practice Activities
Module Summary

Lesson 1 | Page 1 of 15
Lesson 1: Expenses for Sellers and Buyers
This lesson identifies the typical expenses incurred by a seller and a buyer in a real estate transaction such as
expenses related to third-party professionals, legal fees, taxes, remuneration, moving, and adjustments on
closing, and how these expenses differ for a seller and a buyer.

This lesson details the typical expenses incurred by a seller and a buyer in a real estate transaction such as expenses
related to third-party professionals, legal fees, taxes, remuneration, moving, and adjustments on closing. This lesson
also covers how these expenses differ for a seller and a buyer.
You cannot predict an extensive list of every seller’s or buyer's expenses. However, general knowledge will help you
to better understand and prepare the seller and buyer. For example, you can discuss the range of closing costs with
sellers and buyers, but not the specifics. The information you provide must be limited to general estimates only,
leaving precise details to the appropriate experts.
Understanding this will also help you fulfill your obligations under REBBA and prevent any risk of damage to your
reputation or relationship with a seller or buyer.
Upon completion of this lesson, you will be able to:

• Identify typical expenses incurred by a seller in a real estate transaction
• Identify typical expenses incurred by a buyer in a real estate transaction
Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

Third-Party Expenses for a Seller, I
The home selling process entails several third-party expenses that the seller may not be aware of, such as the costs
of obtaining services from a home stager, lender, surveyor, and other third parties.
As a salesperson, you will need to demonstrate knowledge and skill when advising a seller on potential expenses
associated with selling their home.

Third-Party Expenses for a Seller, II
Now, we will take a closer look at some third-party expenses that a seller may incur in a typical real estate
transaction.
The following four sections contain information about the typical third-party expenses for a seller.
While navigating through the online module, click the KMS button in the Module Resources for tools and
information on this topic.
Home stager
Home staging is the process of making a home

esthetically attractive to potential buyers. The aim is to
sell a home quickly and for the most money possible
by highlighting its key features and conveying a
positive visual impression to potential buyers.
A seller has several options when staging a property:

• Use a professional stager to spotlight their home
• Obtain guidance from a real estate professional
trained in staging concepts
• Rely on the many do-it-yourself home staging
guides
It is important to note that home staging is not a

regulated field and there are no industry standards.
Staging costs can vary depending on the stager, the
amount of work involved, and the number of
furnishings required.

Lender
A seller may need to obtain expert advice from a

lender for certain aspects of the selling process. For
example, if the seller wants to discharge a mortgage
before the term has expired and there is a discharge
penalty, the seller would be required to pay the cost of
discharging the mortgage. The seller should contact
their lender to determine the amount, if any, that
would be charged for this early discharge. As another
example, the seller may want to take their existing
mortgage to another property that they buy and speak
to the lender regarding any additional costs.

Surveyor
A seller may require a surveyor to verify the size and

extent of the current land ownership. The cost of the
survey depends on various factors such as the size of
the property and if there is an old survey in existence.
Surveyors prepare a report that sets out the property's
boundaries and all structures on the property. The
report is accompanied by a written document that sets
out any issues arising from the survey and the
surveyor's opinions on such matters.

Lawyer
The seller will require the services of a lawyer to:

• Review the Agreement of Purchase and Sale
• Note any deadlines to ensure the transaction
proceeds as scheduled
• Respond to any questions or concerns received
from the buyer’s lawyer as a result of title and
non-title searches
• Prepare and deliver the Statement of
Adjustments to the buyer's lawyer
• Fulfill any other requirements of the transaction
• Ensure that prepaid expenses are returned to the
seller by way of adjustments and that they have
settled any outstanding property tax or utility
payments before closing
• Transfer the property title to the new owner
Legal fees will range in price depending on the

complexity of the transaction. They include fees for the
lawyer's time and expenditures to address the
transaction on behalf of the seller. Expenditures can
include document preparation, registration of a
discharge of the charge/mortgage, and other
miscellaneous disbursements.

Additional Expenses for a Seller

There are several other expenses that a seller may have to incur when selling their home. Taxes such as the
Harmonized Sales Tax (HST) or capital gains tax could be applicable to the sale. Other expenses could include
brokerage remuneration, moving expenses, and adjustments made on closing by the lawyer.
Possessing this knowledge will help you as a salesperson comply with various ethical requirements, such as
referring the seller to third-party professionals, ensuring the seller understands the costs associated with the sale,
and working in their best interests when selling their home.

Additional Expenses for a Seller
Now let's understand some other expenses that a seller may incur during the selling process.
The following four sections contain information about additional expenses for a seller.
Harmonized Sales Tax (HST) and capital gains tax
Expenses related to taxes include the Harmonized

Sales Tax (HST) and capital gains tax. HST is applicable
on various services associated with the closing such as
lawyer fees, brokerage fees or remuneration (if
applicable), and moving costs.
The capital gains tax is applicable to any capital gain

realized on the sale of a seller's rental or investment
property or non-principal residence. The capital gains
tax would not be payable on closing but would be paid
by the seller on their next income tax return. The
capital gains tax is not normally considered a closing
cost, but it can create closing complexities in the event
that the seller is a non-resident. The seller would be
advised by the salesperson to contact their accountant
for an estimate of the tax payable as this is beyond the
expertise of a salesperson. If the seller is a non-
resident of Canada, then they would have to pay the
capital gains tax on or before closing and provide
evidence to the buyer's lawyer by means of a

Clearance Certificate, or the buyer's lawyer could
withhold the capital gains tax from the purchase price.
Remuneration
Generally, the seller pays the remuneration owed to

both the brokerage(s). The listing brokerage then
shares remuneration with the co-operating brokerage
(when applicable) as stipulated in a seller
representation agreement.
In most cases, the brokerage has the right to first apply

the deposit to reduce remuneration owed on closing. If
there is any deficiency, the balance of the
remuneration (plus the HST applicable on the full
remuneration owing) is paid by the seller's lawyer to
the listing brokerage once the transaction has closed. A
brokerage may not disburse the deposit from their
statutory trust account until they have received
confirmation from the seller’s lawyer that the
transaction has been completed.

Moving expenses
Moving expenses can include incidental costs

associated with change of address, legal documents,
drivers' licenses, and vehicle permits. The cost of
moving may vary greatly depending on the moving
company selected. For example, the seller may decide
to rent their own truck and pack themselves, or they
may decide to hire professional movers for the entire
process. Other expenses may include the costs of
transferring utility accounts or opening new accounts.
In some cases, a seller may have installed a new

furnace on a rent-to-own basis or conditional sales
contract. Prior to closing, any outstanding balance for
the furnace would be paid by the seller. The buyer
would not normally assume the contract to pay for the
furnace.

Expenses related to adjustments made on closing
Adjustments are costs that are allocated between the

seller and buyer on closing. It could be a debit or credit
to either party depending on the situation. The
expenses that are most commonly adjusted for include
unmetered utility costs and property tax. Property
taxes would be payable or credited on closing. This
would become an adjustment item on the Statement
of Adjustments. If the seller has paid the tax until the
end of the year and the closing is earlier, the seller
would be credited the amount representing the time
they will not own the property. In some cases, there
could be an outstanding bulk of utility costs (such as
water and electricity) that would become an
adjustment item to the credit of the buyer on closing.
You will learn more about this later.

A seller is selling their investment property. The seller has agreed to let the current tenants stay until closing or
longer if the new owner agrees. Despite nominal outlays for upkeep, the home is in good condition although the
wallpaper and the tenants’ furniture look a bit dated. The home has a mortgage. The seller is planning to list the
property at an amount that is twice what they originally paid.
The salesperson wants to ensure the seller is aware of the expenses they are likely to incur.
Which of the following expenses should the salesperson discuss with this seller?
There are six options. There are multiple correct answers.
1 Capital gains tax

2 Fees charged by a professional home stager
3 Brokerage remuneration
4 Lawyer’s fees and disbursements
5 Adjustment expenses
6 Moving expenses

Third-Party Expenses for a Buyer, I
Just as a seller will incur expenses during the home selling process, a buyer will incur expenses during the home
buying process. The home buying process could entail third-party expenses that the buyer may not be aware of,
such as the costs of obtaining services from a property inspector, appraiser, and a surveyor.
As a salesperson, you should make the buyer aware of any potential expenses when buying a home. This will help
ensure the buyer has sufficient funds to complete the transaction and will help you build confidence with potential
buyers.

Third-Party Expenses for a Buyer, II
Now let us take a closer look at some third-party expenses that a buyer may incur in a typical real estate transaction
such as the costs of obtaining services from a property inspector, appraiser, lawyer, and surveyor.
The following four sections contain information about the typical third-party expenses for a buyer.
Property inspector
A buyer may require the services of a property

inspector to learn about the condition of a property
prior to purchase. An inspection report includes
information about the physical structure, including the
roof, attic, walls, floors, ceiling, windows, doors,
insulation, and all other visible components of the
structure. The mechanical systems are also inspected,
including the condition of the heating system, central
air conditioning, electrical, plumbing, and other
systems.

Appraiser
An appraisal is the act or process of estimating value

and providing an opinion concerning that value. The
lender may require an appraisal of the property when
arranging the mortgage for the buyer to ensure that
the value of the property is sufficient in the event the
buyer defaults on the mortgage payment. Although a
lender requests most appraisals, the borrower (buyer)
often pays the appraisal cost.

Surveyor
A buyer may require a survey to identify any

encroachments, improvement locations, or other
issues that their lawyer believes would not be
addressed by title insurance. In addition, if the buyer
was contemplating improvements after the closing
that would require a building permit, minor variance,
and severance, then a survey would often be required.
Obtaining a survey will help the buyer learn about any
encroachments or easements that will prevent them
from making future changes to it. It will also identify
the property boundaries (scope of ownership) and the
location of most improvements to the property such as
the house, garage, and fence. The surveyor’s fee may
vary depending on a few conditions such as the
property’s size, shape, terrain, and accessibility.

Lawyer
A buyer will require the services of a lawyer to review

the agreement of purchase and sale, and to perform a
title search, which verifies the seller's ownership of the
property and identifies if there are any encumbrances
against the title that will affect the buyer's ability to
acquire a clear, free, and marketable title. The buyer
will also pay certain expenses related to documents,
such as the cost of registering the transfer/deed and
any charge/mortgage.
You will learn more about this later in the module.

There are several other expenses that a buyer may have to incur when buying a home. Some of these include land
transfer tax, remuneration, moving expenses, and adjustments made on closing.
Understanding and explaining to the buyer that they will have expenses which they may not have considered when
purchasing a home will show that you as a salesperson are knowledgeable and professional.

Additional Expenses for a Buyer
Now, you will take a closer look at some other expenses that a buyer may incur during the buying process.
The following four sections contain information about these other expenses for a buyer.
Land transfer tax and Harmonized Sales Tax (HST)
When a buyer purchases a property, they are required

to pay Ontario provincial land transfer tax, which is
based on the price paid for the property. The land
transfer tax is assessed when a deed is registered,
transferring ownership of the property from the seller
to the buyer. First-time home buyers may qualify for a
refund of some or all of the land transfer tax that
would be applicable. Other tax-related expenses
include the HST on the various services associated with
the transaction such as lawyer, home inspectors,
appraisals, brokerage remuneration (if applicable), etc.
In addition to the Ontario provincial land transfer tax,

the city of Toronto levies a municipal land transfer tax
equal in value to the provincial Ontario land transfer
tax.

Remuneration
Remuneration paid to the brokerage(s) is most

commonly paid to the listing brokerage by the seller's
lawyer (as per the terms of the seller representation
agreement) and appear as an adjustment item on the
Statement of Adjustments. On some occasions, the
buyer may be obligated to pay remuneration to the
brokerage that is representing them under the terms
of a buyer representation agreement. In those cases,
the buyer can pay the remuneration directly to their
brokerage or instruct their lawyer to pay the fee.

Moving expenses
Expenses that are related to moving may include the

cost of renting a truck to transfer belongings to a new
home and hiring professional movers to assist with the
move. There may be incidental costs associated with
change of address, driver’s licenses, and vehicle
permits.
Other expenses may include the costs associated with

arranging new utility accounts or transferring existing
accounts such as electricity, telephone, and internet
services.

Expenses related to adjustments made on closing
The expenses related to adjustments include the costs

that are allocated between the seller and the buyer.
The seller is responsible for costs associated with the
property until the day before closing, and the buyer is
responsible from the date of closing forward. The
expenses that are most commonly adjusted for include
unmetered utility costs (such as an oil tank) and
property taxes.
Example:
• If the seller has paid the taxes in full to the end of
the year, then the seller will be entitled to a credit
for that portion of the year during which they did
not own the property. The buyer is responsible
for the amount from the day of closing until the
end of the tax year.
• If the house is equipped with a heating system
that is heated using oil, it will require that the
seller purchase a full tank of fuel oil. This amount
would be charged back to the buyer by way of
credit to the seller.

Land Transfer Tax and Credits
When a buyer purchases a property or land in Ontario, the transaction is subject to provincial land transfer tax,
which is due from the buyer on closing. First-time buyers may be eligible for a full or partial refund of the land
transfer tax.
The following two sections contain information about the land transfer tax and credits for first-time home buyers.
Calculation of land The land transfer tax uses a sliding scale of percentages based on property value.
The lawyer will arrange for the land transfer tax to be paid when the deed to the
transfer tax
property is transferred to the buyer's name.
First-time buyers First-time buyers of newly constructed and resale homes are eligible for a full or
partial refund of the land transfer tax.
refund (new and resale
houses) The criteria to qualify for this refund are as follows:
• The buyer must be a Canadian citizen or a permanent resident of Canada.
• The buyer must be 18 years of age or older.
• The buyer must occupy the home as a principal residence within nine
months of registration.
• The buyer cannot have owned a home anywhere in the world. (This is
confirmed by signing an affidavit with a lawyer.)
• If the buyer has a spouse, the spouse cannot have owned an eligible home
or had any ownership interest in an eligible home anywhere in the world
while he or she was the buyer's spouse. (This is confirmed by signing an
affidavit with a lawyer.) If they have, then a refund would not be available to
either spouse.
The maximum amount of a refund of the land transfer tax to buyers of a resale
home is $4,000. Based on Ontario’s land transfer tax rates, this refund will cover
the full tax for homes with a purchase price of up to $368,000. For homes

purchased for more than $368,000, buyers will receive the full $4,000 rebate and
pay the remaining balance of the land transfer tax owing.
The land transfer tax on a newly constructed home purchased from a builder is
calculated on a purchase price net of HST; therefore, the Ontario land transfer tax
will be slightly less and will be reflected on the amount of refund to a buyer. The
maximum amount of the rebate remains the same for both resale and newly
constructed homes purchased from a builder.

Costs for the Day of Closing
Most adjustments are made on a per day or per diem basis. The day of closing is the day upon which ownership of
the property is transferred to the buyer from the seller. To simplify the adjustment process and eliminate the need
for a "part day" adjustment, the Vendors and Purchasers Act stipulates that the buyer is responsible for the costs
that are incurred on the day of closing.

A first-time buyer is interested in purchasing a home. The buyer meets with their salesperson to ask about any
expenses they might encounter in the home buying process.
Which of the given expenses should the salesperson advise the buyer to consider?
There are four options. There are multiple correct answers.
1 Capital gains tax

2 Expenses the seller may have prepaid for which the buyer may be responsible
3 Land Transfer Tax (LTT)
4 The cost of a home inspection

Congratulations, you have completed the lesson!
In this lesson, you learned about the typical expenses that a seller and a buyer may incur in the selling process, such
as those related to third-party professionals, lawyer's fees, real estate remuneration, moving costs, unmetered utility
amounts, and various types of taxes, including HST and capital gains tax. You have also learned about the additional
expenses that a buyer may incur, such as the land transfer tax.
Understanding these expenses will help you as a salesperson demonstrate reasonable knowledge, skill, and
judgement in providing advice or information to the sellers and buyers in the process of selling or buying a property.

Lesson 2: Mortgage Essentials
This lesson describes the essentials of a mortgage such as types of mortgages, amortization, term, and legal and
equitable mortgage. This lesson also describes the sources of mortgage funding for buyers and the services they
provide, how mortgages are funded, and factors that impact mortgage interest rates.

This lesson describes the terms relating to mortgage financing, such as the types of mortgages, amortization, term,
and loan-to-value ratio. This lesson also discusses the covenants (promises), rights, and privileges under mortgages;
sources of mortgage funding for buyers and the services that will be provided; factors that impact mortgage interest
rates; and how to calculate a mortgage payment under various scenarios.
Understanding the basics of a mortgage will help you demonstrate reasonable knowledge and competence in
providing information to sellers and buyers. As a salesperson, you should be capable of providing general
information about mortgages and recommend the seller or the buyer speak to a professional, such as a lender or
mortgage broker, when financing aspects of a transaction need to be addressed.

• Describe a mortgage
• Identify sources of funding for buyers

Mortgage Basics
A mortgage is a claim or encumbrance upon a property given by the owner of the property to the lender as security
for the money borrowed. The two parties to a mortgage transaction are referred to as the mortgagor (borrower)
and the mortgagee (lender). The borrower gives the mortgage as security for the loan, receives the funds, makes the
required payments, and maintains possession and ownership of the property. The lender gives or lends the money
and registers the mortgage against the property. The borrower has the right to have the mortgage discharged from
the title once the debt is fully paid.
Knowing the basics of mortgages will help you as a salesperson to understand the concerns of buyers and provide
informed and effective service. It is important to note that you should refer buyers to a mortgage specialist for
precise details. Section 8 of the Code states that the salesperson will advise sellers and buyers to obtain the services
of a professional when they do not have the knowledge, skill, judgement, or competence to provide the services.

Types of Mortgages
Historically, borrowed funds were traditionally secured by the lender taking physical possession of the property. The
property reverted to the original owner on a specified date, assuming the loan was paid with interest. Otherwise, the
property was lost forever due to lack of payments on agreed dates. Over the years, the intent underlying a mortgage
changed. The borrower came to retain possession of the land but pledges it to the lender as security.
Mortgages are referred to in terms of their priority of registration. For example, a property may have two mortgages
registered on title. Distinguishing these mortgages is required as the priority of registration can impact the ability of
the lender to recover the debt owed should a default occur. Let's look at the various types of mortgages and how
they differ from each other.
The following two sections contain information about the types of mortgages.
Legal As the mortgage historically transferred the owner’s interest in the land to the lender until the
loan was repaid, it was termed the legal mortgage as transferring title could only occur once. It
mortgage
is commonly referred to as a first mortgage today.
In the event of default, the lender can take action against the borrower. This could include
either foreclosure, where the borrower forfeits any equity that they may have in the property,
or it could include forcing the sale of the property under power of sale.
In the event of a sale or some disposition of the property, the first mortgage is first in priority
to be paid. Any mortgage registered after this would be paid based on the funds remaining
after full payment to the legal or first mortgage.
Equitable An equitable mortgage is commonly known as a second mortgage, third mortgage, and so on.
This is sometimes used when a borrower requires additional funding but does not want to
mortgage
disturb the existing legal (first) mortgage, or the mortgagee does not want added risk by
increasing the first mortgage but is agreeable to another secondary lender assuming that risk.

The secondary lender is content with this added risk if they feel that the property and
borrower’s ability to pay are acceptable. This subsequent mortgage often requires a higher
interest rate to offset the increased risk of the mortgage being in second place if a default
occurs.

Amortization and Term
Amortization refers to the gradual retirement of a debt by means of periodic partial payments of principal and
interest. After a number of years of scheduled payments, the total loan amount will be paid in full. Term refers to
the time period a lender agrees to loan the funds for on agreed upon specifics, such as the interest rate or any
privileges.
The following three sections contain information about the amortization options and the term of a mortgage.
Fully amortized A fully amortized loan is a mortgage loan with specified scheduled payments,
which include principal and interest that a borrower will pay over a designated
mortgage
period of time until the maturity date when the loan is paid in full.
Amortization periods typically range from five to 30 years, and commonly

residential mortgages range between 15 and 25 years. A longer amortization
results in a lower mortgage payment; however, the amount of interest paid over
the amortization increases.
A fully amortized mortgage is where the amortization and the term of the
mortgage are the same.
In a partially amortized mortgage, the borrower makes payments of principal and
Partially amortized
interest, but these installment payments are not sufficient to pay back the total
mortgage principal amount at the end of the term. Therefore, a final payment on the
mortgage at its maturity date would be required to pay off the debt in full. This is
known as a balloon payment.
Instead of paying the full amount by way of the balloon payment, the borrower
may renew the mortgage for another period of time (called a term) until the total
debt has been paid. A mortgage may be amortized over 30 years yet broken down
into smaller terms that are renewed.

Term The mortgage term is the length of time the borrower is committed to the lender.
The mortgage will have a specified interest rate, payment schedule, and privileges
associated with it for the term.
When the term has ended and there is an outstanding amount of money still
owed to the lender, a borrower will renew the mortgage. This could be with the
same lender or a different lender, and the interest rate, payment schedule, and
privileges associated with the loan may differ from what was previously agreed to.
The term of a mortgage can vary based on many factors, such as the anticipated
direction of interest rates. For example, if interest rates appear to be falling, a
borrower may have a short term to the mortgage, such as six months. If interest
rates are stable or increasing, a borrower may choose a longer term, such as five
years, to be assured of the lower or stable interest rate.

Loan-to-Value
The loan-to-value ratio is a term used to express the ratio of a loan to the value of a property. The amount of the
mortgage is divided by the value of the property to provide a ratio, which would be expressed as a percentage. The
higher the percentage, the more risk the lender has because the loan amount is high in relation to the amount of
equity the borrower has in the property. Most lenders use a conservative loan-to-value ratio as a way to reduce their
risk associated with a loan. Additional security or collateral is usually sought in instances when the loan-to-value
ratio meets or slightly exceeds a predetermined comfort level for the lender.
Example:
A property’s estimated value is $550,000, and the borrower wishes to obtain a mortgage in the amount of $375,000.
The lender assesses the loan-to-value ratio when considering the mortgage application. The loan-to-value ratio for
this borrower is 68% ($375,000/$550,000). The lender is satisfied with this ratio when reviewing the application.
You will learn more about this later in this module.

Fixed Rate Versus Variable Rate Mortgages
A fixed rate mortgage is a mortgage in which the rate of interest does not change throughout the term of the loan.
The amount of principal and interest paid each month in a blended payment may vary, but the total payment
remains the same. The standard blended mortgage is generally referred to as a fixed mortgage; namely, a blended
principal and interest payment is fixed throughout the term.
A variable rate mortgage is a mortgage in which the interest rate is adjusted periodically to reflect market
conditions. Variable rate mortgages fluctuate with the applicable bank prime rate. Corresponding adjustments are
made to payments or amortization. Typically, payment adjustments are made quarterly, half yearly, or yearly.

Repayment Options
Mortgages are repaid using a series of payments over a period of time. These payments usually include an interest
amount calculated on the unpaid balance plus a portion of the unpaid balance of the mortgage amount. Any
payment made against the principal amount of the mortgage owing is called a principal payment.
Most mortgage products flow from four basic payment arrangements: interest only, interest accruing, interest plus
specified principal, and blended (amortized). The final option can be either a fixed or variable rate.
The following four sections contain information about the basic mortgage payment arrangements.
Interest only The borrower does not repay any principal, but remits interest payments at regular, specified
intervals. The principal amount is due at the end of the mortgage term. Interest only
mortgages are sometimes used in short-term private or interim financing to avoid complex
interest calculations.
Interest The lender receives no payment of interest or principal during the mortgage term. Interest
due and payable is accrued. Consequently, the lender's risk grows during the term. Interest
accruing
accruing mortgages are rarely found in today's marketplace and, if used at all, would
undoubtedly be for a very short time period.
Interest plus This plan, sometimes referred to as a straight principal reduction plan, requires the borrower
to repay a fixed principal amount at specified times during the term. At regular intervals, the
specified
borrower is also asked to pay interest on the outstanding balance. This type of payment
principal arrangement is uncommon and would probably come from a private lender as an equitable
mortgage.
Blended This plan is the most common type of payment arrangement for residential mortgages. It
provides for equal payments made at regular specified intervals during the mortgage term.
(amortized)
Each payment is a blend of principal and interest based on the amortization schedule for the
mortgage. Blended mortgages can be either fixed or variable. The fixed mortgage has a set

interest rate for the blended mortgage during the term of the mortgage. The variable rate
mortgage has an interest rate that varies based on the lender's prime rate or some other
identified index.

Covenants
A mortgagor (borrower) makes various promises (covenants) to the mortgagee (lender). These are clearly identified
in the lender’s standard charge (mortgage) terms or statutorily set out in provincial legislation under the Mortgages
Act. There are certain covenants that will apply to every mortgage registered; these are known as the implied
covenants, which are different from the lender-specific covenants found in their set of standard charge terms.
The following three sections contain information about the covenants under mortgages.
First implied covenant The first implied covenants are listed as:
• The mortgagor will make payments (including interest) and pay taxes. This is
also called a “personal covenant”. It is a promise by the borrower to pay the
mortgage as agreed to in the mortgage documents. The borrower also
agrees to pay the property taxes.
• The mortgagor has the legal right to give the mortgage. The borrower has the
authority to give the property to the lender as security for the loan.
• The mortgagor will provide insurance on the buildings. The lender wants to
ensure the property will be protected against any damage that could affect
the value or condition of the property. The borrower promises to insure the
property, including against the risk of fire.
• The mortgagor has no other encumbrances other than those registered on
the specific property. The lender wants assurance there is no other debt
associated with the property.
• The mortgagee, when the mortgagor is in default, has the right to take
possession, collect rents from tenants, and sell the land. This gives the lender
the right to sell the property, if in default, to pay the outstanding balance of
the loan. This action is known as “power of sale”.

• The mortgagee in possession by default shall be granted quiet possession. If
the lender takes possession of the property, there can be no interference
from any other party which would include the borrower.
• Upon default, total monies owing shall become due and payable. If the
borrower does not make the scheduled payments, they are in default. If that
occurs, the lender informs the borrower that they will be required to pay the
whole mortgage balance rather than just the outstanding payments.
• Interest in arrears may be collected. The lender may charge and collect
interest on any outstanding payments by the borrower.
• The mortgagor in default agrees to do such things as reasonably requested
by the mortgagee in possession relating to the land. The borrower agrees to
co-operate with the lender with reasonable requests.
Second implied The mortgagor covenants that the land is held in fee simple, which means they
have the most rights and the fewest limitations to ownership, and the land is
covenant
owned with good title.
Third implied covenant The mortgagor covenants that the lease, in the case of a leasehold property, is
valid and up-to-date, and that reimbursement to the mortgagee will be made by
the mortgagor for non-payment or non-performance of other covenants under
the lease.

Rights
Both borrowers and lenders are guaranteed certain rights under a mortgage contract. These rights are explicitly
outlined in the mortgage document. The Mortgages Act also stipulates additional basic rights that are granted to
both parties.
The mortgagee rights are:

1. Right to assign the mortgage: The mortgage, as an interest in land, can be sold, transferred, or assigned
without the consent of the mortgagor. The mortgagor must be notified of the assignment. The assignee
acquires the rights of the mortgagee. This individual acquires only the rights that the mortgagee had and no
agreement between the mortgagee and the assignee changes any right that the mortgagor already has or
imposes any additional burden on the mortgagor. The terms of the mortgage remain the same if assigned to
another mortgagee until the date of renewal. The mortgagor will make payments to the new mortgagee.
2. Right to be paid: The mortgagee also has the right to be paid the principal sum that is loaned, and the interest
based on arrangements spelled out in the mortgage document. Failure on the part of the mortgagor to pay on
those terms, to fulfill covenants (promises), or to observe the provisions of the mortgage will give rise to
several remedies that can be exercised by the mortgagee including power of sale and foreclosure. If all
covenants are fulfilled and the full amount of the mortgage has been paid by the mortgagor, a discharge is
provided to the mortgagee.
The mortgagor rights are:

1. Right to quiet possession: The mortgagor has the right to quiet uninterrupted possession and no
interference by the mortgagee when not in default. They have the right to use the property and are not
responsible to the mortgagee for ordinary wear and tear on the structures but must exercise reasonable care
and maintain the property.
2. Right to redeem the property free of the mortgage: The mortgagor retains the right to sell or mortgage
their interest, and to deal with it in the same manner as any interest in property. This right is extremely
important. Any provision inserted in the mortgage document that attempts to prevent the mortgagor from
exercising this right will be struck down as invalid.

3. Right to discharge the mortgage: When the loan is fully paid, the mortgagor obtains a discharge signed by
the mortgagee. The discharge fee is normally paid by the mortgagor. If a discharge cannot be obtained, the
provincial statute relating to mortgages typically provides for the mortgagor to make application through the
courts to obtain a court order based on supporting evidence.
While navigating through the online module, click the KMS button in the Module Resources for tools
and information on this topic.

Privileges
In addition to rights, mortgagors may have certain privileges requested by the mortgagor and granted by the
mortgagee. Whereas rights are absolute, privileges may be granted to a borrower at the discretion of the lender,
provided that the borrower has complied with the terms and conditions of the contract. These privileges may be
outlined in the mortgage contract or negotiated between the two parties as needed.
The following five sections contain information about the four main privilege categories.
Pre-payment Pre-payment is a privilege, and unless otherwise specified, the mortgagor has
agreed to make payments according to a specified schedule and the contract is
written to run for a specified period. No additional payments (such as
prepayments) are permitted unless provided for in the mortgage document. The
prepayment option will allow the mortgagor to make additional agreed upon
payments towards the principal. This privilege will benefit the mortgagor because
the additional payments will reduce the amortization period and therefore the
interest payable.
Renewal Some mortgages have a built-in renewal privilege. However, this is an exception to
the general rule. Most Canadian mortgages do not specifically spell out the
opportunity to renew and, consequently, this opportunity does not exist.
Transfer The ability to transfer a mortgage again depends on the wording of the mortgage
document. Generally, three different approaches exist in the Canadian mortgage
marketplace:
1. The mortgagor may be able to transfer without the consent of the
mortgagee, but they may remain liable through their personal covenant. The
mortgage may be assumed by another mortgagor, but the original
mortgagor will remain responsible for the payments if the new mortgagor
defaults, unless they are removed from the mortgage document.

2. The mortgagee may insert sale and approval clauses requiring approval of
any person who will be assuming the mortgage at the point of property sale.
3. The mortgagee may not allow a mortgage to be transferred or insist a non-
transferability clause be included in the mortgage documents. For example,
a borrower has mortgaged their property with a lender as security for
business loans.
Postponement An existing mortgagee, if provided with a reasonable degree of security, may
agree to postpone the priority of their mortgage in favour of a prior mortgage
being replaced or another mortgage being created.
Example:
A property has two mortgages registered on title. When the first mortgage is due
to be renewed, it must be discharged off title and the renewed mortgage
registered on title. When the mortgage is discharged off title, the second
mortgage would automatically move up into first place, and the renewed
mortgage would now be registered in second place.
This would add risk to the mortgage that is in second place and could result in a
higher interest rate for the renewed mortgage. A postponement would allow the
first mortgage to be renewed and registered on title in first place while the second
mortgage remained in its position as the second mortgage.
Discharge penalty If a mortgagor decides to terminate the mortgage before the end of the term,
they could incur a discharge penalty. The amount of the penalty would be
stipulated in the mortgage document. The mortgagor may also be subject to any
other costs associated with early termination, such as legal fees. If a seller is
planning to discharge their mortgage on closing, the salesperson should
recommend that they contact their lender to determine what the discharge
penalty, if any, will be.

Mortgage Default
Default is defined as a failure to fulfill a promise or obligation. A mortgagor would be in default if they failed to
satisfy any of the covenants in the mortgage. However, most defaults specifically arise from failure to make the
mortgage payments. When in default, the mortgagee will often rely on an acceleration clause in the mortgage
document in which the full mortgage amount becomes due and payable upon default.
Non-legal remedies: The failure to fulfill obligations under a mortgage is often addressed by non-legal means.
Often practical considerations are the driving force behind non-legal remedies. An attempt is made to remedy the
situation through correspondence and/or personal contact with the mortgagor, given certain practical realities. For
most mortgagees (particularly larger lenders) the advantages of immediate direct negotiations are evident. A wide
range of non-legal actions can be taken to remedy default. Creativity in this regard rests solely with individual
lenders (for example, restructuring loan payments and extended amortization).

Legal Remedies for Mortgage Default
Six courses of legal actions are available against a mortgagor in case they default on a mortgage payment, assuming
that the mortgagee has direct control over the loan and can proceed to enforce the mortgage document. The use of
these remedies can indirectly involve real estate practitioners. Salespersons and brokers may be called upon to sell
property on behalf of a mortgagee or be otherwise involved with property in default.
The following six sections contain information about the legal remedies for mortgage default.
While navigating through the online module, click the KMS button in the Module Resources for tools and information
on this topic.
Foreclosure A remedial court action taken by a mortgagee, when default occurs on a

mortgage, to cause forfeiture of the equity of redemption of the mortgagor and
subsequent encumbrancer's equities of redemption. There is a specific time limit
in which the mortgagor can redeem (pay the mortgage), failing which the
mortgagee forecloses on the mortgagor's equity of redemption, that is, the
equitable right to redeem. The mortgagor forfeits any equity that he or she may
have in the property. The mortgagee assumes ownership of the property after
receiving an Order of Foreclosure from the Court. The mortgagee will now be the
registered owner of the property.
Judicial sale Legal remedy involving the disposition (sale) of mortgaged property by court
action. A mortgagee facing a default by a mortgagor may elect a judicial sale by
the court with the proceeds applied to the mortgage debt. If a deficiency occurs,
the mortgagee can obtain judgement against the mortgagor under the personal
covenant.
Quit claim deed A legal document wherein a person agrees to release any right that they may
possess in a parcel of land. In a mortgage, the quit claim deed would involve the
mortgagor's release of their equity of redemption. If equity exists, the mortgagor

could potentially bargain with the mortgagee for a payment to satisfy equity in
return for giving the quit claim deed.
Payment (personal The property serves as the basis for security of the mortgagee; however, the
fundamental relationship between mortgagor and mortgagee is one of debtor
covenant)
and creditor. This relationship involves a covenant to pay and, consequently, any
remedy available to an ordinary creditor is also available to the mortgagee. The
personal covenant is much like a personal commitment on a promissory note. The
mortgagee is perfectly within his/her legal rights to sue for payment based on the
strength of that personal covenant.
Possession (by The actual holding and legal occupancy of a property by a mortgagee due to
default by the mortgagor, typically would happen with some other action (for
mortgagee)
example, power of sale or foreclosure). If the mortgagee takes possession on
default, the mortgagor and any other occupants may be removed from the
property. The action is taken against the mortgagor and anyone else occupying
the property (for example, all family members). However, a tenancy must be
respected by the mortgagee.
Power of sale The legal right of the mortgagee to force the sale of a property without judicial
proceedings should default occur. Power of sale is the most frequently used
method by which a mortgagee remedies a default by a mortgagor. When the
property is sold, the mortgagee will subtract the amount of the mortgage owed,
expenses, and any other debt registered against the property. The balance would
be paid to the mortgagor. The power of sale allows the mortgagee to retrieve only
what they are entitled to, and no more. If a surplus occurs, then the
owner/mortgagor will benefit. The mortgagee, when marketing property under
power of sale, must ensure that the property is actively promoted to the public to
obtain fair market value to protect the equity of the mortgagor.

Identify which of the given statements is true regarding the essentials of a mortgage with
buyers.
There are two options. There is only one correct answer.
To finance the purchase of their new home, a buyer arranges for a mortgage with a lender. The buyer is
1
the mortgagor, and the lender is the mortgagee.
To finance the purchase of their new home, a buyer arranges for a mortgage with a lender. The buyer is
2
the mortgagee, and the lender is the mortgagor.
buyers.
1 The buyer will make blended payments, which will include principal and interest.
2 The buyer will make blended payments, which will include principal only.

buyers.
1 As the interest rate is a fixed rate, it will fluctuate.

2 As the interest rate is a variable rate, it will fluctuate.
buyers.
The blended payments will be sufficient to repay the mortgage in full by the end of the stipulated
1
amortization period as the mortgage is partially amortized.
The blended payments will be sufficient to repay the mortgage in full by the end of the stipulated
2
amortization period as the mortgage is fully amortized.

Mortgage documents include terms that are agreed to by the mortgagor and mortgagee.
Some terms are covenants, others describe rights, and some describe privileges.
Identify which of the following statements are categorized as rights.
There are five options. There are multiple correct answers.
1 The mortgagor will make payments including interest and pay taxes.
2 The mortgagor will provide insurance on the buildings.
The mortgagee, when the mortgagor is in default, will be able to take possession, collect rent from
3
tenants, and sell the land.
The mortgagee can sell, transfer, or assign the interest in the land (the mortgage) without the consent of
4
the mortgagor.
The mortgagee will be paid the principal sum that is loaned and the interest based on arrangements
5
spelled out in the mortgage document.
Mortgage documents include terms that are agreed to by the mortgagor and mortgagee. Some terms are
covenants, others describe rights, and some describe privileges.
Identify which of the following statements are categorized as privileges.
There are four options. There are multiple correct answers.
1 The mortgagor will obtain a discharge signed by the mortgagee when the loan is fully paid.
2 The mortgagor can make additional payments over and above the defined payment schedule.
3 The mortgagee may choose not to renew a mortgage at the end of a term.
4 The mortgagor may transfer the mortgage to another property.

A borrower is in default on their mortgage. As a result of the default, the lender has various options to collect on
the outstanding debt. Following all reasonable attempts to settle the matter, the lender gives the borrower a
notice of two months to repay. If the borrower remains in default after the notice period, the lender will have to
take further action which may or may not involve judicial proceedings.
Which course of action enables a lender to sell a property without any judicial proceedings?
There are four options. There is only one correct answer.
1 Foreclosure
2 Sue the borrower for payment (personal covenant)
3 Quit Claim Deed
4 Power of Sale

Basics of Mortgage Funding
A lender (mortgagee) is an individual, a financial institution, or a public or private group that provides funds to a
borrower (mortgagor) with the expectation that the funds will be repaid. Repayment of these funds will include the
payment of any interest or fees and may occur in increments or as a lump sum.
Understanding the basics of mortgage funding will help you as a salesperson demonstrate reasonable knowledge
and competence in providing information to sellers or buyers.

Lenders
Lenders can be chartered banks, trust companies, credit unions, pension funds, life insurance companies, loan
companies, mortgage investment companies, government agencies, or individuals. In an attempt to be more
competitive, most lenders (with the exception of private lenders) provide services that appeal to their borrowers,
such as waiving legal and appraisal fees, enhancing certain privileges, and sometimes even lowering the interest
rate. Consumers should carefully review individual lender policies when seeking financing.
The following six sections contain information about some sources of mortgage funding for buyers and the
services they provide.
Chartered banks Banks, governed under the Bank Act, have a dominant position in residential
mortgage lending. Banks can loan up to 80% of the value of a property, but any
loan that has a higher loan-to-value ratio than that must have mortgage
insurance. Although using this type of lender may be expensive (because banks
tend to have rigid requirements and are not open to negotiations), it is overall the
most common and convenient way to secure a residential mortgage.
Trust and loan Trust and loan companies often offer the same products as chartered banks but
can be more flexible with respect to the terms and conditions. The main
companies
distinction between trust companies and banks is that trust companies are able to
act as trustees—meaning that they are able to manage a customer’s individual
wealth.
It is important to note that many trust and loan companies are actually owned by
chartered banks.
It is also important to note that while trust companies offer mortgages and other
banking services, loan companies usually offer non-residential consumer loans
and secondary mortgage financing. They are also more commonly used by high-
risk borrowers.

Life insurance Life insurance companies, unlike banks and other lenders, must align cash flows
with long-term commitments to policy holders. Funds invested in mortgages
companies
come primarily from policy premiums paid on whole, term, and group life policies.
Life insurance companies remain actively involved in both residential and

commercial mortgages through subsidiary operations in banking and mortgage
brokerages. Life insurance companies are regulated under the Insurance
Companies Act.
Pension funds Pension funds, as a regulated entity, account for a low percentage of residential
mortgages, according to the Bank of Canada’s statistics. Pension fund managers
continuously seek an asset mix that maximizes yields while ensuring that pension
commitments are fulfilled. These funds typically favour bonds and equities, but
mortgages and real estate factor into the mix.
Credit unions/caisses In Ontario, credit unions and caisses populaires are incorporated and regulated
under the Credit Unions and Caisses Populaires Act, administered by the Financial
populaires
Services Regulatory Authority (FSRA).
A caisse populaire is a credit union conducting business primarily in the French

language. Credit unions must conduct business only with members. Larger credit
unions offer similar services as banks.
Private sources Private sources include individuals and corporations who provide mortgage
financing but are not constrained by underwriting policies typically associated
with major regulated lenders. These sources are not regulated beyond the
requirements of the Mortgages Act (which regulates all mortgages in Canada).
Borrowers may use private financing sources, particularly when dealing with
unique properties or sellers seeking a private investment by offering to take back
the mortgage to the buyer with the sale of their property. Mortgage brokers can
also utilize private lenders.
Private lenders are often viewed as lenders of last resort. As such, they tend to
have more rigid terms and higher interest rates.

Lender Services
The given services are commonly offered by the lending sources you just learned about.
The following four sections contain information about the common lender services.
Financing/refinancing Refinancing a mortgage means altering the original terms of the loan. For
example, if it is time for a borrower to renew their mortgage at the end of the
term, and the property’s value and corresponding equity has increased, they may
choose to renew their mortgage and increase the outstanding principal. This is
called an “equity take-out”.
Alternatively, a borrower may have acquired some savings during that time and
may wish to apply that extra money towards reducing the principal of their
mortgage.
Purchase plus A buyer can apply for a mortgage to cover the closing costs plus the costs of any
necessary improvements that will be made following the closing, such as a new
improvements
furnace, or new windows and doors. This type of service can be of particular
interest to first-time buyers and often requires CMHC approval and mortgage
default insurance (especially if the mortgage value is greater than 80%).
Construction loans A construction loan is typically a short-term higher interest loan that is used to
cover the cost of construction. Given the higher risk for the lender as the home is
being built and is not a finished product, the construction loan is typically a much
higher interest rate than a traditional mortgage.
As a salesperson, there are two main circumstances under which you may
encounter new construction loans:
1) The builder is financing the construction phase of a property, and the
buyer will be arranging their own financing to close the transaction.

2) The buyer will be funding the construction phase of a property and then
closing the transaction using the funds already advanced during
construction.
Construction loans will be covered in more detail in a later module.

Secure line of credit A lending tool often used is a secure line of credit, whereby an arranged amount
of standing credit, backed by the security of the equity in a homeowner’s
property, is registered and available to be used at any time, providing the
borrower does not exceed the limit determined by the lender.
Once the loan has been approved by the lender, no additional approvals are
required, thereby offering more flexibility than a standard loan or unsecured line
of credit.
Interest rates on a secured line of credit will be less than an unsecured loan and
payments can be interest only or a combination of interest plus principal as
determined by the borrower. In addition, there are no restrictions on the
intended use of the money borrowed against the secure line of credit.

Mortgage Markets
Mortgage markets consist of two segments:

• Primary Market: new loans for property financing, new construction, and rehabilitation of existing structures
• Secondary Market: existing mortgage instruments are traded based on future cash flows (for example, the sale
of a mortgage portfolio by a primary lender to an investment company or pension fund)
The following two sections contain information about the mortgage markets in detail.
Primary market (prime The primary market consists of both prime and sub-prime markets. Prime
markets are focused on borrowers who have A or A+ credit (in other words, high
and sub-prime
credit scores and no credit problems). Further, properties must meet acceptable
borrowers) standards concerning construction, finishes, and location.
Sub-prime markets involve lenders who entertain higher risk levels involving
borrowers with B and C level credit (ranging from marginal credit scores and
delinquency problems to discharged bankruptcy and individuals with no credit
ratings).
The primary market is most relevant to a borrower as its dynamics largely

determine mortgage funding costs and availability. This market relies on the free
interplay of borrower and lender in the search for, and provision of, funds for
property financing, new construction, and renovations.
Secondary market The secondary market involves trading of existing mortgages. Primary market
lenders sell mortgage portfolios to investment companies or pension funds in this
market. Mortgages are pooled and converted into securities that can be
purchased in pre-set dollar amounts (for example, $5,000 per unit).

Interest Rates
Interest rates are largely determined by supply and demand forces, but other factors intervene. In the simplest
scenario, when the demand for a mortgage loan increases and the supply remains constant, rates will rise.
Abundant supply generally lowers rates, assuming all other factors remain constant. However, investors are not
restricted to a single market and may be swayed by other investment options including commodities, term deposits,
business ventures, government securities, foreign currencies, and bond issues. A slowdown in the mortgage market
occurs when other investment options prove more attractive. A corresponding rise in mortgage rates is required to
increase market appeal. Many other variables are also at work such as credit score, property type, and the amount
of the loan. The government also exerts tremendous influence on mortgage rates.
The factors that impact the mortgage interest rates are:

• Marketplace demand and supply forces
• Mortgage market versus other investment options in a capital market
• Risks associated with specific mortgages (property or borrower)
• Government monetary policies


Calculating Mortgage Payments
Most mortgages involve blended payments of principal and interest. The longer the amortization, the lower the
payment and the more interest paid, given that all other things are equal. Mortgage term and amortization are
rarely identical for residential mortgages. Terms generally range from 1 to 5 years and amortization periods range
from 15 to 25 years.
To calculate a payment, choose the correct chart (whether the calculation is based on a weekly, bi-weekly, semi-
monthly, or monthly payment). You will find the interest rate on the left-hand column and the amortization period
at the top. Where the two meet is the factor that you will multiply by the mortgage amount. The payment factors are
per $1,000 of the loan, therefore divide by 1,000 and then multiply that amount by the payment factor.
The next screen contains information on each payment factor chart.

Calculating Mortgage Payments for Different Options
The following four sections contain information about the calculations for some common mortgage payment
options.
Weekly mortgage payment
In weekly mortgage payment, the mortgagor makes 52

payments per year.
Example: A $100,000 mortgage with a 25-year

amortization at an interest rate of 6.5% will require a
weekly mortgage payment of $154.26 [1.542580
(weekly payment factor) x 100 (loan value in number of
thousands) = 154.2580].
Click the thumbnail to access the information in the
weekly mortgage payment factor chart.

Bi-weekly mortgage payment
In bi-weekly mortgage payment, the mortgagor makes

a payment every 2 weeks, which results in 26
payments per year.
Example: A $100,000 mortgage, with a 25-year

amortization, at an interest rate of 6.5% will require a
bi-weekly mortgage payment of $308.71 [3.087058 (bi-
weekly payment factor) x 100 (loan value in number of
thousands) = 308.7058].
Click the thumbnail to access the information in the bi-
weekly mortgage payment factor chart.

Semi-monthly mortgage
The payment is structured for the mortgagor to make

payments 2 times per month, for instance, on the 1st
and 15th of each month. With a semi-monthly
mortgage payment, the mortgagor makes 24
payments per year.

semi-monthly mortgage payment of $334.47 [3.344656
(semi-monthly payment factor) x 100 (loan value in
number of thousands) = 334.4656].
semi-monthly mortgage payment factor chart.

Monthly mortgage payment
The mortgage payment is made on the same day of

every month (for example, on the 1st day of the
month). With a monthly mortgage payment, the
mortgagor makes 12 payments per year.

monthly mortgage payment of $669.82 [6.698238
(monthly payment factor) x 100 (loan value in number
of thousands) = 669.8238].
monthly mortgage payment factor chart.

A buyer has applied for a mortgage of $200,000 with interest of 5% per annum and a 20-year amortization period.
The monthly payment factor is 6.571250.
Given the mortgage details, calculate the buyer's monthly mortgage payment amount
(rounded to two decimal points).
1 1468.50
2 1102.30
3 1676.28
4 1314.25
A buyer has applied for a mortgage of $400,000 with an annual interest rate of 4% and a 25-year amortization
period. The semi-monthly payment factor is 2.627931
Given the mortgage details, calculate the amount of the buyer's semi-monthly mortgage
payment (rounded to two decimal places).
1 1341.10
2 1201.10
3 1051.17
4 1670.20

Here is a summary of the key topics that were discussed in this lesson:
• The basics of mortgages, such as types of mortgages, amortization, term, loan-to-value ratio, fixed and variable
rate interests, and mortgagor versus mortgagee
• Options for residential mortgage products, legal and non-legal remedies for mortgage default, and the
covenants, rights, and privileges under mortgages
• How mortgages are funded, sources of mortgage funding for buyers and the services they provide, the factors
that impact mortgage interest rates, and how to calculate a mortgage payment under various scenarios
Understanding the basics of mortgage and mortgage funding will help you as a salesperson demonstrate
reasonable knowledge and competence when working with sellers and buyers. Sections 6 and 8 of the Code require
a salesperson to advise a seller or buyer to obtain services from an appropriate expert for precise details when they
do not have the knowledge, skill, judgement, or competence to provide the service.

Lesson 3: Mortgage Approval and Mortgage Specialists
This lesson identifies the concept of loan-to-value ratio, the costs associated with mortgages, mortgage default
insurance premiums, and broker, legal, and appraisal fees associated with mortgages. This lesson also describes the
process for mortgage qualification, when to advise a buyer to involve a mortgage specialist, and the importance of
confirming a buyer has received approval for financing prior to being committed to a purchase.

This lesson discusses the mortgage default insurance premiums and broker, legal, and appraisal fees associated
with mortgages. This lesson also describes the steps in a mortgage qualification process, mortgage pre-approval
versus a mortgage commitment, and the importance of confirming that a buyer has received approval for financing
prior to a binding agreement to purchase.

• Identify the costs associated with mortgages
• Outline the process for mortgage qualification

Costs Associated with Mortgage
Costs associated with mortgages could be something a buyer is not fully aware of when arranging for financing of a
purchase. This lesson takes a detailed look at some of the costs associated with obtaining a mortgage, such as
mortgage default insurance premiums, mortgage insurance providers, and the broker, legal, and appraisal fees
associated with mortgages.

Conventional and High Ratio Mortgages
There are two main categories of mortgage loans available: conventional and high ratio.
A conventional mortgage is when a borrower has a down payment of at least 20% of the appraised lending value or
sale price (whichever is less). Conventional mortgages afford lenders a higher level of protection as the borrower
has more invested in the property. Should market conditions change during the term of the mortgage, the lender is
not at as much risk for loss should the property be sold as the proceeds are more likely to be sufficient to repay the
loan.
A high ratio mortgage is when a borrower has a down payment of less than 20%. A high ratio mortgage will require
mortgage default insurance. There are fees associated with this type of mortgage that the borrower will pay. The
insurance protects the lender when a default has occurred. Institutional lenders, such as banks, trust companies,
credit unions, and mortgage loan companies are not permitted to lend mortgage money when the amount is in
excess of 80%.
The upcoming screens provide additional information on loan-to-value ratios and mortgage default insurance.

Loan-to-Value Ratio
As mentioned previously, the loan-to-value ratio is the percentage of the value of the property that is mortgaged.
The loan-to-value ratio for a buyer will vary depending on the lender, the type of property being mortgaged, and the
financial capability of the borrower. A high loan-to-value ratio is generally seen as a higher risk as the borrower has
less equity invested in the purchase, and—should values fall—the risk of having a property over-financed is
increased. Therefore, a lender may require the borrower to purchase mortgage insurance to offset their risk. In
some instances, a lender may require mortgage default insurance on mortgages with a loan-to-value less than 80%
given risks associated with particular applications or properties that may be a higher risk for the lender.
Example:
A borrower is seeking financing on a property that is located in a rural area that includes some industrial property
uses. When reviewing the mortgage application, the lender calculates the loan-to-value ratio as 70%. However, due
to the property’s location and the influence of the industrial property uses, the lender will require the borrower to
obtain mortgage default insurance even though the loan-to-value ratio falls within a conventional mortgage.

Mortgage Default Insurance Providers
Mortgage default insurance provides protection for the lender (mortgagee) should the borrower (mortgagor) fail to
meet the obligations set out in the mortgage. In other words, it guarantees that the lender will be repaid if the
homeowner fails to make the required payments. In return for that guarantee, lenders will provide mortgages on
housing purchases with as little as a 5% down payment, compared with 20% normally required for conventional
mortgages. When a buyer is required to obtain mortgage insurance for their financing, the lender could choose one
of three mortgage insurance providers. Each provider can have unique services and their approval criteria may
differ slightly.
The following three sections contain information about mortgage insurance providers in Canada.
Canada Mortgage and CMHC is the government mortgage insurance provider. As the housing agency for
the Government of Canada, CMHC has a mandate to encourage the construction
Housing Corporation
of new houses, the repair and modernization of existing houses, and the
(CMHC) improvement of living conditions and housing throughout Canada.
CMHC provides a range of publications and acts as a resource centre for both
private and public organizations related to the housing industry. CMHC advises
the government on housing matters and designs, and also oversees various
federal housing programs.
Sagen Sagen, formally known as Genworth Financial Canada, is Canada’s largest private
mortgage insurance provider. They offer many different mortgage insurance
products to lenders and brokers across Canada.
Canada Guaranty Canada Guaranty is a private mortgage insurer, which was created when the
existing company acquired AIG United Guaranty Mortgage Insurance Company of
Canada. Canada Guaranty provides various products, including mortgage
insurance for purchases, new home construction, and secondary homes.

Calculating Mortgage Default Insurance Premiums
A mortgage insurance premium is charged on the amount of the borrowed funds. It is a one-time payment, which
can be paid to the insurance company when it is approved and placed, or it can be added to the principal amount of
the mortgage, which is then amortized over the life of the mortgage. The premium will change, depending on the
loan-to-value ratio for the mortgage. The higher the percentage of the property value that is borrowed, the higher
the percentage in insurance premiums that is charged.
An understanding of how to calculate mortgage default insurance premiums will allow you, as a salesperson, to
provide the required information to a buyer. A buyer may not be aware of the mortgage insurance requirement
when first viewing properties to purchase. The premium can be several thousands of dollars, so identifying the
buyer’s down payment and then applying this to the purchase price of the property will provide the buyer with
advance notice that a mortgage insurance premium will be applicable. A buyer could choose to purchase a less
expensive property based on their down payment should they want to avoid paying a mortgage insurance premium.

To determine the mortgage insurance amount, first you will need to determine the loan-to-value ratio. This can be
done by dividing the loan amount by the value of the property, then multiplying it by 100 to get a percentage of the
ratio between the value of the property and the amount of mortgage. The loan-to-value ratio is used to calculate the
premium.
The given example provides fictitious premiums as these can change. As a salesperson, recommend a buyer contact
a lender to obtain current mortgage premium rates.
Loan-to-value Ratio Premium % based on Loan Amount*

Up to and including 65% 0.60%
Using a non-traditional down payment (borrowed funds)
The purchase price minus the down payment equals the mortgage amount. The mortgage default insurance
premium is calculated by multiplying the mortgage amount times the premium percentage.
Example:
Purchase Price** Down Payment Mortgage Loan-to-value Premium Premium

Amount (%) (%) ($)
299,000 54,000 245,000 82 2.80 6,860.00
249,000 15,000 234,000 94 4.00 9,360.00
210,000 45,000 165,000 79 2.40 3,960.00
* Additional premium surcharges may apply (for example, a blended amortization period or the ability to transfer
the mortgage loan insurance to a different property). The Ontario Retail Sales Tax applies to the premium; the tax
cannot be added to the loan amount.
** Insured loans are subject to maximum house price and minimum down payment requirements.

Fees Associated with Mortgages
There are a number of fees in addition to the default insurance that a buyer might need to pay when arranging a
mortgage. These include mortgage broker fees, lawyer fees, and appraisal fees.
Mortgage broker fees
Mortgage brokers assist a buyer in obtaining financing and are paid a fee for these services. For most residential
mortgages, the lender pays the fee; however, a buyer should confirm this before retaining a mortgage broker to
assist them. The fee is typically determined according to the mortgage amount.
Legal fees
Lawyers typically charge a fee for preparing and registering the mortgage. Often, the fee for the transfer of title and
registering the mortgage are combined.
Appraisal fees
Appraisal fees are charged when a lender retains a professional appraiser to estimate the market value of the
subject property for lending purposes. The lender will have an approved list of appraisers, so ensure a buyer does
not obtain an appraisal without first speaking with their lender to ensure the report will be accepted. Most times,
the lender (not the borrower) is the client of the appraiser, which means the borrower may or may not receive a
copy of the appraisal report. Often the fee for the appraisal is paid by the lender, but it could be part of the
borrower’s costs of arranging a mortgage.

A buyer is purchasing a property with a purchase price of $450,000. The buyer’s down payment will be $45,000.
The lender has explained that because the buyer’s down payment is less than 20% of the purchase price, they will
need a high ratio mortgage and a mortgage insurance premium of 3.10% will apply.
Given the purchase price and down payment, calculate the premium for mortgage default
insurance (to two decimal places).
There are three options. There is only one correct answer.
1 12555.00
2 13550.00
3 13000.00

Mortgage Specialist
There are many mortgage options available to a borrower, so consulting a mortgage specialist before committing to
any financing is wise. A mortgage specialist possesses extensive knowledge of the market and can help the
borrower gauge the level of mortgage repayments they can afford by evaluating their income, debt repayments, and
everyday expenses. They can further guide the borrower through the various stages of the mortgage qualification
process.

Mortgage Qualification Process Steps
Mortgage financing methods vary based on circumstance, but certain common patterns emerge in most residential
transactions. The maximum loan amount, interest rate, and terms for a new mortgage will be partially dictated by
the type, location, and value of the property. The financial circumstances of the buyer must also be assessed. The
down payment provides an indication of probable financing requirements, and information as to the buyer’s
income, obligations, stability, and future prospects of income stream will assist in determining the payments that
the buyer can afford. Most salespersons prefer that the buyer be pre-qualified by a mortgage lender before viewing
properties.
The steps in a mortgage qualification process are:

1. Application: A mortgage application is the central document in the financing process. Most applications are
designed to elicit information about the financial ability of the applicant and the property’s value and
marketability. The lending institution may charge a processing fee.
2. Appraisal and Credit Check: The lender reviews the application, applies loan qualification ratios and considers
the stability and future prospects regarding the income stream, as well as personal and financial information
from the applicant. An appraiser or bank representative may inspect the property to ensure that it meets
lender criteria and determines lending value. A credit check is usually performed to verify the financial stability
of the applicant. The credit report is requested by the lender, and the credit bureau providing such information
must comply with provincial legislation concerning the gathering and reporting of this information.
3. Commitment: The mortgage commitment is a letter from the lender agreeing to make the loan subject to
satisfactory title and other conditions specified in that commitment. Several 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 financing a
property would require a formal signed application and other supporting materials. Such a 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, or be the basis for a buyer not requiring an appropriate condition when an offer is
drafted.

Pre-qualifying Versus Pre-approval Versus Commitment

Pre-qualifying for a mortgage is the first step in the process. It can be useful as an estimate of how much a buyer
can afford to spend on a house, however, it is not as useful as a pre-approved mortgage. Pre-qualification is based
on the borrower providing information to the lender without any of the information having been verified or
confirmed.
Mortgage pre-approval is more valuable and is a significant milestone in the process of arranging for a mortgage.
In order for a lender to issue a pre-approval letter, confirmation of the borrower’s income, down payment, details
of assets and liabilities as well as a credit report are required. After the borrower’s finances and information
provided have been reviewed, the lender determines the maximum loan amount the borrowers qualifies for and
provides the borrower with a pre-approval letter.
A pre-approval letter is the lender’s commitment to loan the buyer the money, and often guarantees a certain
interest rate for a specific time frame. This amount is usually the absolute maximum loan or mortgage a buyer
would qualify for. The pre-approval is not necessarily a guarantee of a specific rate or mortgage from that lender
as circumstances may change from the time a buyer has been pre-approved until the time the purchase has been
made. Information contained in the pre-approval letter should be fully understood by the buyer.
A mortgage commitment letter is a document that a lender prepares after approving a buyer’s mortgage
application. It is a pledge that a lender will loan the money to a borrower assuming all final conditions are met.
Before the buyer signs a notice of fulfillment that the financing has been approved, the salesperson should confirm
with the buyer that a written mortgage commitment has been received from the lender and the buyer understands
the written terms of the commitment.
Gross Debt Service and Total Debt Service
A lender determines a borrower's affordability by determining their Gross Debt Service (GDS) and Total Debt Service
(TDS) ratios. The GDS ratio is a comprehensive measure of a borrower's monthly housing expenses. The TDS ratio is
similar to the GDS ratio; however, it includes all of a borrower's debt and is not just focused on housing.
The following three sections contain information about GDS ratio, TDS ratio, and GDS calculations for
condominiums.
Gross Debt The GDS ratio represents the maximum percentage of a borrower's gross income to be
allocated to principal, interest, and property tax payments (PIT). The gross debt service
Service (GDS)
ratio may include heating costs (PITH). A borrower's current monthly mortgage payment is
ratio the primary expense. Other expenses may include monthly property tax payments, home
insurance payments, and utility bills. The total monthly expenses are divided by total
monthly income to calculate the GDS ratio.
The GDS ratio typically varies between 27% and 32% for existing lenders in the
marketplace, but slightly increased limits may apply under certain lending situations if a
borrower has a high credit rating. GDS for a purchase, excluding heating costs, is
calculated as follows:
GDS formula = (annual mortgage payment + annual property taxes) divided by the gross
annual income
Example:
Buyer Jones' income is $65,000 and yearly principal, interest, and tax payments are
$20,960. Therefore, $20,960/$65,000 = .32246 or 32.25%.
GDS ratio – In condominium purchases, the lender will include a portion of the monthly maintenance
fee in the GDS calculation. The lender will normally use 50% of the fee to ensure the
condominium borrower has the capability of paying both the loan payment and the condominium fee,
but lender policies may vary.
GDS for a condominium is calculated as follows:
GDS = (annual mortgage payment + annual property taxes + 50% of the annual
maintenance fees) divided by the gross annual income
Example:
Buyer Johnson has a gross income of $58,000, a $50,000 down payment and is
considering a $170,000 condominium purchase. Taxes are $4,120 per year and
maintenance fees amount to $325 per month ($3,900 per year). Johnson requires a
$120,000 conventional mortgage, amortized over 25 years, with a five-year term. Current
rates are 7.5% and the monthly payment factor per $1,000 is 7.315549.
Monthly Mortgage Payment: ($120,000 ÷ $1,000) x 7.315549 = $877.87
Annual Mortgage Payment: $877.87 x 12 = $10,534.44
Annual mortgage payment, taxes and maintenance fees $10,534.44 + $4,120.00 + ($3,900
x .5) = $16,604.44
Jones’ GDS ratio is calculated as follows: GDS = (Principal and Interest + Taxes +
Maintenance (50%)) ÷ Gross Income = $16,604.44 ÷ $58,000 = 28.63%
Johnson meets the maximum 30% limit for this particular lender.
Total Debt The TDS ratio includes everything in the GDS calculation plus all other debt obligations. In
other words, the TDS ratio includes charges for principal, interest, and property taxes, plus
Service (TDS)
other debts, including personal loans (such as auto or furniture loans, and credit card
ratio debt) and should be clearly differentiated from the GDS ratio.
TDS ratios typically vary between 37% and 40%, but higher limits may apply in certain
lender situations based on high consumer credit scores.
The TDS ratio has become increasingly important with the rise in consumer borrowing.
Lenders are concerned that financial commitments, over and above the mortgage
payment, may result in a future default. Therefore, they seek added assurances by
considering the applicant's total financial picture. The TDS ratio is calculated by adding all
the borrower's monthly debt and dividing it by their monthly income.

TDS is calculated as follows:
TDS = (annual mortgage payment + annual property taxes + annual total loans) divided by
the gross annual income
Example:
Buyer Johnson’s Income: $50,000
Lender Inc. TDS Ratio: 37%
Maximum PIT and 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: $1,042 ($12,500 ÷ 12)
If Johnson requires a $140,000 mortgage at 6.5% with a 25-year amortization, the payment
is 6.698238 x $140(000) = $937.75
Johnson meets Lender Inc.’s TDS requirement.
Outline the Process for Mortgage Qualification
To provide conscientious and competent service to a buyer, as a salesperson, you should confirm that the buyer has
received a mortgage approval from the lender before taking any action related to this. An accepted offer can be
conditional upon a buyer obtaining financing within a specified time period. If the financing is not provided within
the time period, the offer becomes null and void. Therefore, you will need to be diligent in ensuring the buyer is
taking the appropriate steps, in a timely manner, to ensure the financing is being sought. Once financing has been
secured, notice will need to be provided to the seller. Ensure the financing is secured by speaking with the lender as
once the notice is provided to the seller, the buyer could be obligated to the agreement whether the financing is in
place or not.

A buyer's gross income is $60,000 and the purchase price of the condominium they are
considering is $260,000. Suppose the monthly mortgage payment is $916, the property tax is
$334 per month, and the monthly maintenance fee is $500. Calculate the buyer's GDS ratio.
1 30
2 60
3 80

The steps in a mortgage qualification process are listed below:

1. The buyer is pre-qualified by a lender.
2. The buyer completes a mortgage application form.
3. The lender completes a credit check to pre-approve the buyer.
4. The lender completes an appraisal of the property on which the buyer has made an offer.
5. Assuming there are no issues, the lender gives a commitment to the buyer.
6. The salesperson confirms that the buyer has received the financing commitment in writing from the lender
before the buyer signs the Notice of Fulfillment that the condition on financing has been fulfilled.
7. The salesperson provides notice to the seller that the buyer has obtained the required financing.
Select the correct sequence of steps.

1 1, 2, 3, 4, 5, 6, 7
2 2, 3, 1, 4, 5, 6, 7

Here is a summary of the key topics that were discussed in this lesson:
• Additional mortgage basics, including the difference between a conventional and a high ratio mortgage
• Mortgage insurance providers, including CMHC, Sagen, and Canada Guaranty
• Costs associated with arranging mortgages, such as broker fees, legal expenses, appraisal fees, and mortgage
default insurance premiums
• The mortgage qualification process; the difference between being pre-qualified, a mortgage pre-approval, and
a mortgage commitment; calculating the GDS and TDS ratios; and the importance of a salesperson confirming
that the buyer has received approval for financing prior to being obligated to a purchase
Understanding the costs associated with mortgages and the mortgage qualification process will help you, as a
salesperson, demonstrate reasonable skill and judgement in assisting your sellers and buyers throughout the
transaction. Section 8 of the Code requires a salesperson to advise a seller or a buyer to obtain services from an
appropriate expert for precise details.

Lesson 4: Role of Lawyers and Other Third-Party Service Providers
This lesson identifies a salesperson's obligations when referring a seller or a buyer to a lawyer or other third-party
service provider, the circumstances in which they provide referrals, and why it is important to advise sellers and
buyers to obtain expert advice from these professionals. It also details how a salesperson may interact with a lawyer
retained by a seller or buyer and the types of services that third-party professionals provide during a real estate
transaction.

This lesson identifies the obligations of a salesperson, as per section 8 of the Code, when referring a seller or a
buyer to a lawyer or other third-party service providers, the circumstances in which they provide these referrals, and
the importance of advising the sellers and buyers to obtain expert advice from these professionals. It also details
how a salesperson may interact with a lawyer retained by a seller or a buyer and the types of services that third-
party professionals provide during a real estate transaction.

• Describe the obligations of a salesperson when referring a seller or a buyer to a lawyer
• Identify other common third-party service providers a seller or a buyer may involve in the buying or selling
process

Lawyer Involvement, I
A lawyer is typically involved with the completion of a real estate transaction on behalf of a seller or buyer. They
perform various searches and investigations of the subject property related to things like tax arrears, common
expenses, zoning, and work orders, to protect the best interest of their clients. But lawyers are also often involved
prior to this process. Legal involvement can occur when a legal opinion and guidance on matters relating to the
listing process, the drafting of agreements, and real estate negotiations, particularly those involving complex
residential properties, is required by a seller or a buyer.
For example, if a seller or a buyer wants a salesperson to review a document before they sign it or they have a legal
question surrounding the transaction, as the salesperson is unable to provide that level of service, section 8 of the
Code requires that the salesperson must refer the seller or the buyer to the appropriate professional, in these
cases, a lawyer. A salesperson must ensure they are not providing advice or input to sellers or buyers on matters
legal in nature as it may be relied upon by the sellers or buyers.

The circumstances that require the services of a seller’s lawyer are:
1. To prepare Statement of Adjustments
2. To prepare deed to the property
3. To review the Statement of Adjustments again if it is amended and sent back by the buyer’s lawyer
The circumstances that require the services of a buyer’s lawyer are:

1. To request and review title search
2. To request other searches, such as tax arrears and work orders
3. To review Statement of Adjustments
The circumstances that require the services of both buyer’s and seller’s lawyers are:
1. To review agreement of purchase and sale, and advise on terms included
2. To conduct closing of property
3. To request, arrange, and obtain title insurance
You will learn more about these services in-depth in a future module.

Lawyer Involvement, II
A salesperson, following the consent and direction of the seller or buyer, may interact with the party’s lawyer during
a transaction to resolve issues that may come up, such as how the offer should be structured or what amendments
an offer may require after being accepted by the parties.
Once the offer has been accepted and conditions have been satisfied, the brokerage forwards a copy of the
agreement of purchase and sale to the respective lawyers. The lawyers then take steps to prepare for the closing.
The salesperson remains available to the lawyer to answer any questions and provide services as required to
facilitate the closing.
You will learn more about closing a transaction later.

Identify the services that are performed by the buyer’s lawyer only.
There are seven options. There are multiple correct answers.
1 Perform a title search

2 Arrange title insurance
3 Prepare the Statement of Adjustments
4 Prepare the deed to the property
5 Review agreements
6 Review Statement of Adjustments
7 Conduct the closing process

Services from Third-Party Professionals, I
There will be various circumstances that require the advice and guidance of third-party professionals – they are an
important part of a real estate transaction in ensuring a seller or a buyer is being provided the necessary
information to make informed decisions. Therefore, it is important for you, as a salesperson, to understand the role
of each third-party professional and be able to advise a seller or buyer when to obtain these services.

Services from Third-Party Professionals, II
Section 8 of the Code requires a salesperson to advise a seller or a buyer to obtain services from an appropriate
professional if the salesperson is unable to provide the services with reasonable knowledge, skill, judgement, and
competence or is not authorized by law to provide the services. Section 6 of the Code also states that the
salesperson may not provide an opinion or advice about the value of real estate unless they have the knowledge,
skill, and competence to do so. Thus far we have discussed financing and the use of a mortgage specialist or lender,
as well as a lawyer. While a salesperson needs to understand the fundamentals about each of these areas, they are
not qualified to act in any capacity that the seller or buyer could rely on their input as advice. The same principle
applies to the services offered by many other third-party professionals.
For example, a salesperson is showing a property to a prospective buyer and the buyer enquires about the condition
of the drainage and plumbing system. In such a case, the salesperson should be able to provide some general advice
but should inform the buyer to seek assistance from a property inspector or other qualified professional with the
appropriate expertise.
Additional situations where the salesperson should refer the seller or the buyer to a third-party professional is when
there are questions related to tax matters. Although you are obligated to provide conscientious and competent
service as a salesperson, such matters may go beyond your area of knowledge and expertise. Therefore, you should
advise the party seek advice from appropriate experts, such as a lawyer or accountant.

Services from Other Common Third-Party Professionals

During the selling and buying process, there are situations in which a seller or a buyer may need the services of a
third-party professional. Salespersons are trained in real estate but are not skilled in areas where the seller or buyer
could require advice on many different circumstances. Depending on the property type and location, these
professionals and the requirements to obtain their services will vary.
In addition to the previous professionals identified, examples of third-party professionals include:

• Property inspectors: provide a report detailing the condition of the property
• Insurance brokers: arrange home insurance for the property
• Surveyors: provide a survey of the property, including lot lines, easements, and all improvements to the land
• Electricians: inspect, design, install, repair, or evaluate the electrical systems in the house
• Plumbers: inspect, install, repair, or evaluate water supply lines and related appliances
• Well and septic installers: inspect, repair, and evaluate the well and septic system, and waste disposal system
• HVAC specialists: inspect, repair, or evaluate the heating, ventilation, air conditioning, and refrigeration
systems that control the temperature and air quality
• Building contractors: provide estimates of costs associated with identified problems and/or renovations being
contemplated by a buyer

Which third-party professional would inspect the condition of a home for any potential
structural issues or necessary repairs?
1 Electrician
2 Property inspector
Which third-party professional would provide estimates of costs associated with renovations
being contemplated?
1 Building contractor
2 Surveyor

The summary of the key topics that were discussed in this lesson are:
• Your obligations as a salesperson when referring a seller or buyer to a lawyer as per Section 8 of the Code, and
the services provided to a seller or a buyer by a lawyer during a real estate transaction
• How you, as a salesperson, could interact with a lawyer retained by a seller or a buyer during a real estate
transaction
• The importance of obtaining services from third-party professionals in a real estate transaction and the
circumstances where you, as a salesperson, exercise due diligence by referring other third-party professionals
to a seller or a buyer
• Other common third-party professionals and the role they would play during the course of a real estate
transaction
Possessing this knowledge will help you, as a salesperson, demonstrate reasonable knowledge and judgement in
providing advice or information during a trade in real estate and abide by the Code.

Lesson 5: Summary Practice Activities
This lesson provides a series of activities that will test your knowledge on the entire module.

This lesson contains summary decision points that will test your knowledge regarding the financial aspects of the
buying and selling process and the role of third-party professionals.

Identify which of the given expenses are incurred by both the buyer and seller in a typical
real estate transaction.
There are nine options. There are multiple correct answers.
1 Cost of obtaining title insurance

2 Cost related to Land Transfer Tax (LTT)
3 Cost of hiring a home stager
4 Mortgage discharge fee
5 Cost of a home inspection
6 Legal fees
7 Remuneration fee
8 Moving expenses
9 Cost of survey

A seller or a buyer may often have some questions regarding various aspects of selling or buying a property that
may require their salesperson to refer them to an appropriate professional as per the Code.
Identify the scenario in which the salesperson can respond, “Yes, I can do this”.
A buyer requests that their salesperson measure the size and boundaries of the lot they are buying,
1
because a survey is not currently available from the seller.
A seller has an investment property that they want to sell and knows that they will have to pay a capital
2
gains tax. They ask the salesperson if they can tell them how much this will be.
A buyer would like a property inspection of a home that is very old, and asks the salesperson to
3
recommend a few qualified inspectors.
Which of the following are mortgagor rights?

1 Right to quiet possession

2 Right to redeem the property free of the mortgage
3 Right to discharge the mortgage
4 Right to assign the mortgage
5 Right to be paid

A buyer has applied for a mortgage of $500,000 with an annual interest rate of 5%, a 25-year amortization period,
and a bi-weekly payment arrangement. The bi-weekly payment factor is 2.681357.
Given the mortgage details, calculate the buyer's bi-weekly mortgage payment amount
(rounded to two decimal places).
Please note: Round up your final answer to two digits after the decimal and do not include
dollar signs or commas.
1 1340.68
2 1140.79
3 1789.86
A buyer has applied for a mortgage of $300,000 with an annual interest rate of 7%, a 15-year amortization period,
and a weekly payment arrangement. The weekly payment factor is 2.056801.
Given the mortgage details, calculate the buyer's weekly mortgage payment amount
(rounded to two decimal places).
Note: Round up your final answer to two decimal places, and do not include dollar signs or
commas.
1 617.04
2 619.04
3 615.04

Assuming a property and a borrower present no circumstances that require special

considerations by a lender and that the normal lending rules will apply, which of
the following loan-to-value ratios would require mortgage default insurance?
1 69 per cent
2 77 per cent
3 83 per cent
4 90 per cent
5 94 per cent
A buyer is applying for a mortgage of $300,000 at an annual interest rate of 4% amortized over 25 years.
Annual mortgage payment (principal and interest) = $18,936
Annual property taxes = $5,000
Total of annual payments for additional financial obligations = $14,400
Combined family income = $115,000
Based on the given information, determine the buyer's total debt service (TDS) ratio (rounded
to two decimal places).
1 43.34
2 33.34
3 44.30


Module Summary | Page 1 of 4
Module Summary
This lesson contains a summary of the entire module and a list of helpful resources available in the Knowledge
Management System.

Congratulations, you have completed this module!
This lesson will present a summary of Learning Objectives and a list of helpful resources that you can search for in
the Knowledge Management System.

An understanding of the concepts covered in this module will help you, as a salesperson, fulfill your obligations
under REBBA, and prevent any risk of damage to your reputation and relations with your sellers and buyers.
It is important to note that section 8 of the Code requires you, as a salesperson, to advise the seller or buyer to
obtain services from appropriate experts if you are unable to provide those services with reasonable knowledge and
skill, or are not authorized by law to provide the services. The information you can provide must be restricted to
general estimates only, leaving precise details to the appropriate professionals.
There are four sections on this page with a summary of the key topics that were discussed in this module.
Seller and buyer There are several additional expenses that a seller may have to incur during the
selling process, which include legal fees, brokerage remuneration, unpaid property
expenses
taxes, third-party costs, and, if applicable, capital gains tax and HST.
Similarly, a buyer may have to incur additional expenses when buying a house,
which include lawyer's charges, the land transfer tax, unmetered utility costs, pre-
paid property taxes, and in some circumstances, brokerage remuneration.
Completion of this lesson has enabled you to:

• Identify typical expenses incurred by a seller in a real estate transaction
• Identify typical expenses incurred by a buyer in a real estate transaction
Mortgage basics A mortgage is a claim or encumbrance upon the property given by the owner of the
property to the lender as security for money borrowed. There are various
fundamentals of a mortgage that you, as a salesperson, should be aware of, such as
the types of mortgages, amortization, term, loan-to-value ratio, mortgage interest
rates, mortgage payment arrangements, legal and non-legal remedies for mortgage
default, and covenants, rights, and privileges under mortgages.
If a borrower is in default, various legal remedies may be used by the lender

(mortgagee). These include foreclosure, judicial sale, quit claim deed, payment

under a personal covenant, possession of the property by the lender, and power of
sale.
• Describe the essentials of a mortgage with buyers
• Identify sources of funding for buyers
Mortgage The two main categories of mortgage loans are high ratio, in which the loan-to-value
ratio is more than 80%, and conventional, in which the borrower’s down payment is
qualification process
20% or more. There are several costs associated with mortgages, such as mortgage
default insurance premium, mortgage broker fees, legal fees, and appraisal fees.
Mortgage qualification involves several factors, such as down payment, appraisal,

employment stability, and credit check. A lender determines a borrower's
qualifications by determining their GDS and TDS ratios.
Pre-approval is a process that lenders use to qualify borrowers for mortgages.

Mortgage commitment is a letter from the lender agreeing to make the loan subject
to satisfactory title and other conditions specified in that commitment. This follows
the selection of a property and successful negotiation of an agreement of purchase
and sale. A buyer may approach a lender and be pre-qualified before viewing
properties. Pre-qualified does not include the lender verifying any of the buyer’s
information.
To provide conscientious and competent service, as a salesperson, you should

confirm that a lender has granted mortgage approval prior to taking any additional
steps required in the purchasing process.

• Identify the costs associated with mortgages
• Outline the process for mortgage qualification

Role of a lawyer and While most legal involvement is focused on the closing process, legal opinions and
guidance can be vital in matters relating to the listing process, drafting of
other third-party
agreements, and real estate negotiations, particularly those involving complex
professionals residential properties. A lawyer performs various searches and investigations of the
subject property related to matters such as tax arrears, condominium maintenance
fees, zoning, and work orders to protect the best interest of their clients.
A salesperson, with the seller or buyer’s consent, may interact with their lawyer
during a transaction to resolve issues that may arise during a real estate
transaction.
As a salesperson, you are obligated to provide conscientious and competent service
(as per section 5 of the Code) to sellers and buyers. This includes knowing when
matters may go beyond your area of knowledge and expertise. At this time, you
would advise the seller or buyer to involve a third-party professional.

• Describe the obligations of a salesperson when referring a seller or buyer to a
lawyer
• Describe the importance of obtaining services from third-party professionals
in a real estate transaction

Module Resources
There are seven helpful resources related to this module that you can search for in the Knowledge Management
System.
1. Role of a Lawyer in a Real Estate Transaction: This table describes some of the services that a lawyer may
provide when assisting a seller or a buyer with the sale or purchase of their home. A salesperson can use this
job aid to better understand the role of a lawyer throughout the closing of a real estate transaction.
2. Covenants, Rights, and Privileges Under Mortgages: These tables detail the covenants, rights, and privileges
that are guaranteed under a mortgage contract. A salesperson can use this job aid when they need easy
access to this information so they can communicate it to sellers and buyers as needed.
3. Mortgage Default – Legal Remedies: This job aid describes the potential legal outcomes that arise when a
mortgagor defaults on a mortgage payment. A salesperson can use this job aid when selling a property on
behalf of a mortgagee or if they are otherwise involved with a property in default.
4. Calculating Mortgage Default Insurance Premiums: This job aid provides detailed information on how to
calculate mortgage default insurance premiums. A salesperson can use this job aid to explain the process for
calculating mortgage default insurance premiums to a buyer.
5. Mortgage Payment Options: This table describes the mortgage payment options that are available to buyers. A
salesperson can use this job aid to better understand the difference between blended and interest-only
payments.
6. Mortgage Qualification Process: These steps describe the typical mortgage qualification process. A salesperson
must always seek qualified advice from third-party specialists. A salesperson can use this job aid to better
understand and explain the mortgage qualification process to buyers.
7. Calculating Gross Debt Service (GDS) and Total Debt Service (TDS) Ratios: This job aid describes how to
calculate Gross Debt Service (GDS) and Total Debt Service (TDS) ratios in detail. Lenders determine how much
the buyer can afford by reviewing their GDS and TDS ratios. A salesperson can use this job aid to better
understand how to calculate a buyer’s GDS and TDS ratios before they apply for a mortgage.
While navigating through the online module, click the KMS button for tools and information on this topic.

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©2019 Real Estate Council of Ontario

Number of Lessons 6 Lessons

Lesson Number Lesson Name

©2019 Real Estate Council of Ontario

Lesson 1: Expenses for Sellers and Buyers

©2019 Real Estate Council of Ontario

Upon completion of this lesson, you will be able to:

©2019 Real Estate Council of Ontario

Third-Party Expenses for a Seller, I

©2019 Real Estate Council of Ontario

Third-Party Expenses for a Seller, II

Home staging is the process of making a home

A seller has several options when staging a property:

It is important to note that home staging is not a

©2019 Real Estate Council of Ontario

A seller may need to obtain expert advice from a

©2019 Real Estate Council of Ontario

A seller may require a surveyor to verify the size and

©2019 Real Estate Council of Ontario

The seller will require the services of a lawyer to:

Legal fees will range in price depending on the

©2019 Real Estate Council of Ontario

Additional Expenses for a Seller

©2019 Real Estate Council of Ontario

Additional Expenses for a Seller

Harmonized Sales Tax (HST) and capital gains tax

Expenses related to taxes include the Harmonized

The capital gains tax is applicable to any capital gain

©2019 Real Estate Council of Ontario

Generally, the seller pays the remuneration owed to

In most cases, the brokerage has the right to first apply

©2019 Real Estate Council of Ontario

Moving expenses can include incidental costs

In some cases, a seller may have installed a new

©2019 Real Estate Council of Ontario

Adjustments are costs that are allocated between the

You will learn more about this later.

©2019 Real Estate Council of Ontario

1 Capital gains tax

©2019 Real Estate Council of Ontario

Third-Party Expenses for a Buyer, I

©2019 Real Estate Council of Ontario

Third-Party Expenses for a Buyer, II

A buyer may require the services of a property

©2019 Real Estate Council of Ontario

An appraisal is the act or process of estimating value

©2019 Real Estate Council of Ontario

A buyer may require a survey to identify any

©2019 Real Estate Council of Ontario

A buyer will require the services of a lawyer to review

You will learn more about this later in the module.

©2019 Real Estate Council of Ontario

©2019 Real Estate Council of Ontario

Additional Expenses for a Buyer

Land transfer tax and Harmonized Sales Tax (HST)

When a buyer purchases a property, they are required

In addition to the Ontario provincial land transfer tax,

©2019 Real Estate Council of Ontario

Remuneration paid to the brokerage(s) is most

©2019 Real Estate Council of Ontario

Expenses that are related to moving may include the