Mortgage Broker Licensing Practice Exam · Question
A client has an existing mortgage with an outstanding balance of $400,000 at a fixed rate of 3.5% for two more years. Their current Heloc has a balance of $50,000. The property is valued at $700,000. They are considering refinancing to consolidate debt and access more funds. If they refinance, with a new fixed rate of 5.0%, and break their current mortgage, what potential penalty should the broker discuss?
Mortgage penalty calculations for fixed-rate mortgages with more than three months remaining on the term typically involve the greater of a 3-month interest pen
Start free practice for Mortgage Broker Licensing Practice Exam
302 questions · no signup required · 40 free questions per day
Question: A client has an existing mortgage with an outstanding balance of $400,000 at a fixed rate of 3.5% for two more years. Their current Heloc has a balance of $50,000. The property is valued at $700,000. They are considering refinancing to consolidate debt and access more funds. If they refinance, with a new fixed rate of 5.0%, and break their current mortgage, what potential penalty should the broker discuss?
Answer options:
- A. A penalty equivalent to 3 months' interest on the $50,000 Heloc balance.
- B. A penalty equivalent to 3 months' interest on the $400,000 mortgage balance.
- C. An Interest Rate Differential (IRD) penalty, as the new rate is higher. ✅ D. An Interest Rate Differential (IRD) penalty, because their current rate is lower than the new rate, and there are more than 3 months remaining on the term.
Correct answer: D. An Interest Rate Differential (IRD) penalty, because their current rate is lower than the new rate, and there are more than 3 months remaining on the term.
Explanation: Mortgage penalty calculations for fixed-rate mortgages with more than three months remaining on the term typically involve the greater of a 3-month interest penalty or the Interest Rate Differential (IRD). Since the current rate is 3.5% and the new market rate (or lender's posted rate for a comparable term) is likely higher than the original rate at the time of origination, the IRD calculation will likely apply. The IRD applies when the borrower's current rate is higher than the lender's current posted rate for a similar term, resulting in a loss of interest for the lender, or when the borrower's rate is lower than the new rate.
Start free practice for Mortgage Broker Licensing Practice Exam
302 questions · no signup required · 40 free questions per day
More about Mortgage Broker Licensing Practice Exam
Related Questions
- What is the typical time frame for a mortgage agent to provide the required disclosure statement to a client?
- Funds received from a client or investor that the brokerage holds on their behalf must be deposited into:
- Ontario mortgage agents must complete which of the following at each licence renewal?
- Which entity is responsible for licensing and regulating mortgage brokers and agents in Ontario?
- What is a 'material change' in relation to a client's mortgage application?
- Ethical behavior for a mortgage broker includes:
More for Mortgage Broker Licensing Practice Exam candidates
Question explanations
- What is the typical time frame for a mortgage agent to provide the required disclosure statement to a client?
- Funds received from a client or investor that the brokerage holds on their behalf must be deposited into:
- Ontario mortgage agents must complete which of the following at each licence renewal?
- Which entity is responsible for licensing and regulating mortgage brokers and agents in Ontario?
Ready to practice?
Free, no signup required. Build a wrong-question list as you go.
Start Free Mortgage Broker Licensing Practice Exam Practice →Related courses
Other Canadian certifications candidates often prepare for alongside this one.