Mortgage Broker Licensing Practice Exam · Question
A mortgage client, Mark, has a mortgage with a principal balance of $300,000 at an interest rate of 4.5% compounded semi-annually. He makes monthly payments. If he wants to calculate his monthly mortgage payment over a 25-year amortization period, what effective monthly rate should be used in the payment calculation formula?
To convert a semi-annual compounded rate to an effective monthly rate, the formula is: (1 + (Nominal Rate / 2))^2 - 1 = Effective Annual Rate; then (1 + Effecti
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Question: A mortgage client, Mark, has a mortgage with a principal balance of $300,000 at an interest rate of 4.5% compounded semi-annually. He makes monthly payments. If he wants to calculate his monthly mortgage payment over a 25-year amortization period, what effective monthly rate should be used in the payment calculation formula?
Answer options: ✅ 0.3708%
- 0.3750%
- 0.3800%
- 0.4500%
Correct answer: 0.3708%
Explanation: To convert a semi-annual compounded rate to an effective monthly rate, the formula is: (1 + (Nominal Rate / 2))^2 - 1 = Effective Annual Rate; then (1 + Effective Annual Rate)^(1/12) - 1 = Effective Monthly Rate. So (1 + 0.045/2)^2 - 1 = 0.04550625 Effective Annual Rate. Then (1 + 0.04550625)^(1/12) - 1 = 0.003708, or 0.3708%.
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Related Questions
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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?
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