Free practice questions · Course 1
Introduction to Real Estate Financing Practice Questions
Fundamentals of mortgage financing including first and second mortgages, amortization, payment structures, and the role of lenders in a transaction. Below are 5 free sample questions from our 30-question Introduction to Real Estate Financing bank. Each comes with the correct answer and a full explanation.
Question 1 of 5
Which of the following is a key responsibility of CMHC in the Canadian mortgage market?
- ASetting the Bank of Canada overnight rate that drives prime
- BProviding default insurance on high-ratio residential mortgages and supporting affordable housing programs
- CLicensing mortgage agents and brokerages in Ontario
- DActing as the registrar of title for properties under the Land Titles system
Why B is correct
CMHC is one of three default insurers in Canada, along with Sagen and Canada Guaranty. Its broader mandate includes housing research and affordability programs, not regulation of mortgage agents or monetary policy.
Question 2 of 5
A nominal annual mortgage rate of 6 percent is compounded semi-annually. What is the effective annual rate?
- A6.00 percent
- B6.09 percent
- C6.17 percent
- D12.00 percent
Why B is correct
Effective annual rate equals (1 + i/n)^n minus 1. With i equal to 6 percent and n equal to 2, EAR equals 1.03 squared minus 1, which equals 0.0609 or 6.09 percent.
Question 3 of 5
Under section 6 of the Interest Act (Canada), interest on a closed Canadian residential mortgage is most commonly calculated on what compounding basis?
- ACompounded monthly, not in advance
- BCompounded daily, not in advance
- CCompounded semi-annually, not in advance
- DSimple interest only, with no compounding
Why C is correct
Canadian convention quotes mortgage rates compounded semi-annually, not in advance. This makes the effective annual rate slightly less than the same nominal rate compounded monthly.
Question 4 of 5
What does the principal of a mortgage refer to?
- AThe total of all interest payments over the amortization period
- BThe original amount borrowed that must be repaid to the lender
- CThe monthly payment a borrower makes to the lender
- DThe fees charged by the lender to set up the mortgage
Why B is correct
Principal is the actual debt owed to the lender. Each payment reduces principal and pays interest charged on the outstanding balance.
Question 5 of 5
Aiden Patel signs a mortgage with a five-year term and a 25-year amortization. What does the term represent?
- AThe total time required to fully pay off the mortgage
- BThe length of time the current interest rate and contract conditions apply
- CThe minimum time before the borrower can sell the property
- DThe schedule used to compound interest on the loan
Why B is correct
Term and amortization are different. Aiden's rate is locked for five years; the 25-year amortization is the projected runway to fully pay down the loan if conditions stayed the same.
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