Chapter 4: Application Case Question
1. Requirements for obtaining a mortgage:
1.1. There are two ratios used to assess whether you can support the mortgage
payments— Gross Debt Ratio[GDS] and Total Debt Ratio[TDS]
1.2. Need to check your credit score with two of the agencies that track them to ensure
there are no errors + not that good score would affect your ability to get the
mortgage and the interest rate too
1.3. Other issues that you should be aware before you begin the process of buying a
home, such as down payment, how long you’ve worked in your current job, and
are you self-employed
2. Other than conventional mortgages, there is a new type called ‘Collateral Mortgage’ with
both advantages and disadvantages. Because if you renovate your home, can limit amount
of credit available to you for other purchases since it can be an amt. 125% of cost of
home, not amt. of mortgage
3. Other types of Home Insurance
3.1. Condominium, Mobile home, Mortgage [Life, default and CMHC], Tenants, Title,
mortgage fraud/title insurance, identity theft
4. Risk Management Issues Not Covered by Insurance
4.1. Identity Theft— OPCC, FCAC, and RCMP have advice on how to prevent it [Pg
206]
4.2. Seniors— Pg 211
4.3. Miscellaneous Fraud including Ponzi Schemes, Investment fraudsters,phishing,
CRA calls, and love on the internet [Pg 214]
5. Effects on Mortgage Rates on the Term [Pg 215]
6. Effect on Total Interest of making more frequent payments; larger payment is better than
more frequent payments [Pg 221-222]
7. Financing using your home
7.1. As you pay down mortgage as price increases, have some equity to draw out
renovations by
7.1.1. Refinancing mortgage payments
7.1.2. Borrowing back amt.’s you’ve paid
7.1.3. Taking out HELOC— Home Equity Line of Credit
7.1.4. Taking out a second mortgage
7.2. Rent out home, but would classify as a business so make sure to ensure insurance
allows it
Homeowners Insurance Overview
1. Three levels of coverage
1.1. Basic
1.2. Broad
1.3. Comprehensive— Best [Pg 164]
2. Redlining, legally done by charging premium based on home and area; meanwhile,
discrimination based on income/ race is illegal
3. Types of losses:
3.1. Direct Loss— Due to the event
3.2. Indirect loss— Loss because of the direct loss [Pg 166]
4. Four Principles of Insurance [Pg 166]
4.1. Indemnity
4.2. Insurable interest
4.3. Subrogation
4.4. Reasonable expectations
5. Two types of coverage expectations
5.1. Guaranteed replacement cost
5.2. Actual Cash value [Pg 167]
6. Pg 168; Examples 4.1 and 4.2
7. Each year with your annual invoice, agent/broker will send you the Declarations Page
that outlines details about your coverage that are unique to your policy and they generally
do not send the actual policy
Homeowners Comprehensive Policy; Section 1—Insurance on your property
1. Coverage A— Principal Dwelling; Your house [Pg 175]
2. Coverage B— Additional Buildings like the garage and generally covers for 10% of the
house value
3. Coverage C— Personal Property; Content such as furniture, books, clothes, etc but they
do have limitations [Pg 176]
4. Special Limits of Insurance— Certain limits do not apply if the claim was caused by a
specified peril
4.1. If you work from home, it is possible that you are not covered for any loss due to
your business, make sure to pay attention to your policy [Pg 178]
5. Coverage D— Loss of Use: Lets you know what to expect if there is major damage and
you need to move out or if you have a tenant and they need to move; could you survive
without the extra income?
6. Exclusions: Very long list and specific from Pg 178-180; even in Comprehensive
6.1. Property of Tenant
6.2. Terrorism
6.3. Water leak that you didn’t fix in time
6.4. Raccoons in your attic
6.5. An earthquake
6.6. Flood
6.7. Heat goes off when you are on vacay, unless you made required precautions
7. Coverage that are not subject to deductible
7.1. If your credit card is stolen [Pg 181]
7.2. If you call fire department and are charged
7.3. Hydro goes out and food is spoilt; loss needs to be substantial since you don’t
want multiple small claims
7.4. Need to move out due to evac. Notice; you are covered
8. Bases of Claims Settlement— Tells you what you can expect to receive from insurer in
case of loss to property and house [Pg 183]
8.1. If you decide to not repair or rebuild, you will not receive replacement cost; can
choose to collect actual cash value but may not be much if it's like a garage cuz
10% only
8.2. Need to keep coverage 100% of replacement cost, therefore, make sure to check
with insurer
8.3. If your contents are not covered for guaranteed replacement cost but only
guaranteed cost— only up to limits of insurance
8.3.1. Only get actual cash value for anything that is not repaired/replaced
8.3.2. You should get an endorsement for anything that is readily not covered by
replacement cost coverage
Homeowners Comprehensive Policy; Section 2—Insurance on your liability to others
1. Covers you if you or someone covered by this policy unintentionally causes bodily injury
to other people not insured by this policy or damage to the another's property
2. ‘Coverage E— Legal Liability’ covers you if you are sued and are required to pay
compensatory damages for the following liabilities [Pg 187-188]
a. Personal Liability, including your actions anywhere in the world
b. Premises Liability, including all your premises as outlined in the definitions
c. Tenant’s legal liability, including properties that you have borrowed or rented
d. Employers’ liability, including all residence employees, but not business
employees
3. ‘Coverages F, G, and H— Voluntary Payments’ essentially cover the same thing as
Coverage E, but you do not need to lose lawsuit for insurer to pay; voluntary payments
are those paid without anyone having to go to court by your insurer
a. Coverage F—Voluntary Medical Payments covers unintentional injury to other
people [Pg 188]
b. Coverage G— Voluntary Property Payments covers damage to peoples’ property
by anyone insured by this policy
i. Unintentional damage caused by an adult, and
ii. Intentional damage caused by a child 12 years old or under [Pg 189]
c. Coverage H— Voluntary Compensation for Residence Employees
4. Special Limitations [Pg 191-192]
a. Watercraft— Both those you own and do not
b. Motorized vehicles like lawn mower or snow blower, both owned or not owned
by you
c. Trailers
d. ‘Some’ business activities
5. Loss or Damage Not Insured [Pg 192]
Homeowners Comprehensive Policy; Section 3—Conditions
1. Similar to auto-policy and on Pg 194
2. Basic Policy provides named perils coverage but comprehensive provides all risk
coverage [Pg 198]
