Here are a dozen True/False questions to test your understanding of Canadian mortgages. Page numbers at the end of each answer refer to The Perfect Mortgage, by Alan Silverstein (Toronto: Stoddart Publishing Co., Ltd., 1995).

NOTE: laws affecting mortgages can vary from province to province and change from time to time: these questions are intended to spur your interest rather than provide specific advice!

True or False?

1. In Canada, interest on residential mortgages is generally deductible against other income for tax purposes.    (    ) True    (    ) False
    
2. In the US, mortgage interest is calculated monthly; in Canada semi-annually. The American approach is cheaper for borrowers.    (    ) True    (    ) False
    
3. Mortgages without specific restrictions on prepayment can be paid out at any time with a three-month interest penalty.    (    ) True    (    ) False
    
4. Lenders don't have to honor the policies they advertise at the time a mortgage is advanced.    (    ) True    (    ) False
    
5. Mortgages are not necessarily open on maturity.    (    ) True    (    ) False
    
6. Canadians have no legal right to prepay their mortgages, even with a three-month interest penalty.    (    ) True    (    ) False
    
7. Paying off a mortgage more frequently than monthly will produce significant savings over the life of a mortgage.    (    ) True    (    ) False
    
8. Unless a restriction to the contrary is written in the contract, any mortgage in Canada is automatically assumeable by the new owner of the mortgaged property.    (    ) True    (    ) False
    
9. You can be held liable for a mortgage even after it has been assumed by the purchaser of your property.    (    ) True    (    ) False
    
10. If you've kept your payments up, your lender can't refuse to renew your mortgage when it comes due.    (    ) True    (    ) False
     
11. The mortgage payment insurance you must buy when arranging a high-ratio loan protects you in the event you default.    (    ) True    (    ) False
     
12. A high-ratio first mortgage is less risky and less expensive over the long run than a conventional-mortgage-plus-second-mortgage totalling the same amount.    (    ) True    (    ) False
     

Answers

1. False: you can't usually deduct residential mortgage interest for tax purposes. X after-tax dollars paid towards mortgage interest may require earnings of up to 1.66 times X before taxes - hence the importance of mortgage pre-payment to minimize interest charges (see p. 17).
    
2. False: monthly calculation of interest in the US is more expensive for borrowers than Canada's semi-annual approach (see p. 28).
    
3. False: a mortgage is a contract to repay a loan according to a set schedule. Unless additional payments are specifically permitted in writing, the lender chooses whether they will be allowed, and on what terms (see pp. 45, 75).
    
4. True: lenders can choose where to apply their various policies and to change them, so get it in writing! (see p. 42)
    
5. False: by definition, mortgages are fully payable without prepayment penalty (ie, fully open) once they become due (see p. 46).
    
6. True: technically, the Canada Interest Act allows individual (ie, not corporate) borrowers to pay off a mortgage, in full with a three-month interest penalty, at the end of successive five-year periods, once 5 years have passed since the signing of the original mortgage. But most lenders write their mortgages and renewals to fail the 5-year test (see p. 53).
    
7. False: it depends. Dividing your regular monthly payments by four to calculate the weekly payments results in the equivalent of an extra monthly payment each year, saving you big bucks long-term. But the effect and its benefits are lost if your lender defines the weekly payment as 1/52 your annual payment (see p. 73).
    
8. True: if the contract is silent on the point, any purchaser can assume any mortgage without the lenders approval. But there's a catch . . . (see p. 98)
    
9. True: except in Alberta and Saskatchewan, sellers may later be held responsible for their original mortgage - even if the new owners assumed it with the express approval of the lender! Sellers should apply to their lender for a  formal release, and in BC and PEI, cannot be "unreasonably" denied. Elsewhere, watch out! (see p. 100)
    
10. False: when a mortgage comes due, it's due! Unless obliged to in the contract, the lender doesn't have to renew. In practice, most do, so long as payments have been kept up - and interest rates haven't risen beyond the borrower's ability to pay (see p. 113).
     
11. False: it protects the lender. The insurer pays the lender, then comes after you (see p. 129).
     
12. False: risk is a function of ability to pay, not the number of contracts. Considering the insurance fees applied to the total amount of high-ratio loans, it can often be cheaper to borrow by way of an uninsured conventional first plus a small second mortgage, than through a single high-ratio first mortgage - if  the second mortgage is paid off quickly (see pp. 127, 132).
     

How'd you do?

If you didn't answer most of the questions correctly, perhaps you should spend a few evenings with the book - it's very clearly written, and there's a lot more than your pride at stake!