RECA FUNDAMENTALS OF MORTGAGE
BROKERAGE 2026 EXAM REVIEW STUDY GUIDE
BUNDLED QUESTIONS AND ANSWERS
PREMIUM
◉ why does the interest portion of a mortgage get charged more in
the beginning of a mortgage repayment. Answer: This is because the
interest is calculated on the declining balance of the mortgage loan
◉ What is a variable rate mortgage (VRM). Answer: A variable-rate
mortgage is a loan with an interest rate that may fluctuate during
the mortgage term depending on changes in market interest rates.
The rate is typically based on the lender's prime interest rate.
With a variable-rate mortgage, within the set payment amount,
interest goes up or down, which affects the amount going toward the
principal.
Total payment amounts do not change when the prime rate changes.
,◉ What is a prime interest rate (AKA Prime Rate). Answer: A prime
interest rate, also known as the "prime rate", is the interest rate that
banks use as a basis to set rates for different types of loans,
credit cards,
and lines of credit
It is the baseline rate upon which all floating rate loans are
negotiated
the prime rate is set by each bank to determine the amount of
interest they charge their customers, however they generally aim to
keep their rates similar to each other
◉ what determines the prime rate of banks. Answer: Banks and
lenders often adjust their prime interest rate in response to the Bank
of Canada's overnight interest rate.
The Bank of Canada adjusts the target for the overnight rate eight
times each year on fixed dates.
,◉ what is the target for the overnight rate of the Bank of Canada?.
Answer: the target for the overnight rate is the primary tool used to
control inflation
◉ what is the overnight market (Bank of Canada)?. Answer: Every
business day, Canada's financial institutions move money back and
forth among themselves for their customers. Whenever you use your
debit card or send an e-transfer, money flows between financial
institutions. At the end of each day, they need to settle all these
payments.
Some institutions may have sent out more in payments than they
received, while others may have received more than they sent.
To balance out the payments, financial institutions can borrow
money from each other for one day in the overnight market.
The Bank sets a target for the interest rate we want financial
institutions to charge each other when they make these overnight
loans.
◉ What is the deposit rate and bank rate?. Answer: Financial
institutions don't have to borrow from each other to balance their
payments—they can also use the Bank of Canada.
, They can deposit money with us at the deposit rate for one night or
borrow money from us at the bank rate for one night.
◉ What is the Operating band (Bank of Canada). Answer: The range
between the deposit rate and the bank rate is called our operating
band. It can vary in size.
Currently, the range is one-quarter of a percentage point wide, with
the deposit rate equal to the target rate.
This is called a floor system, because the target is at the floor of the
operating band
e.g. if the Bank sets the policy interest rate at 2.25%
the lower end of the range is also 2.25%—our deposit rate
the higher end of the range is 2.5%—our bank rate
also the deposit rate (lower range of the operating band) is the
target for the overnight rate
◉ what is the corridor system. Answer: Before 2020, we generally
kept the range one-half of a percentage point wide, with our policy
interest rate sitting in the middle.
BROKERAGE 2026 EXAM REVIEW STUDY GUIDE
BUNDLED QUESTIONS AND ANSWERS
PREMIUM
◉ why does the interest portion of a mortgage get charged more in
the beginning of a mortgage repayment. Answer: This is because the
interest is calculated on the declining balance of the mortgage loan
◉ What is a variable rate mortgage (VRM). Answer: A variable-rate
mortgage is a loan with an interest rate that may fluctuate during
the mortgage term depending on changes in market interest rates.
The rate is typically based on the lender's prime interest rate.
With a variable-rate mortgage, within the set payment amount,
interest goes up or down, which affects the amount going toward the
principal.
Total payment amounts do not change when the prime rate changes.
,◉ What is a prime interest rate (AKA Prime Rate). Answer: A prime
interest rate, also known as the "prime rate", is the interest rate that
banks use as a basis to set rates for different types of loans,
credit cards,
and lines of credit
It is the baseline rate upon which all floating rate loans are
negotiated
the prime rate is set by each bank to determine the amount of
interest they charge their customers, however they generally aim to
keep their rates similar to each other
◉ what determines the prime rate of banks. Answer: Banks and
lenders often adjust their prime interest rate in response to the Bank
of Canada's overnight interest rate.
The Bank of Canada adjusts the target for the overnight rate eight
times each year on fixed dates.
,◉ what is the target for the overnight rate of the Bank of Canada?.
Answer: the target for the overnight rate is the primary tool used to
control inflation
◉ what is the overnight market (Bank of Canada)?. Answer: Every
business day, Canada's financial institutions move money back and
forth among themselves for their customers. Whenever you use your
debit card or send an e-transfer, money flows between financial
institutions. At the end of each day, they need to settle all these
payments.
Some institutions may have sent out more in payments than they
received, while others may have received more than they sent.
To balance out the payments, financial institutions can borrow
money from each other for one day in the overnight market.
The Bank sets a target for the interest rate we want financial
institutions to charge each other when they make these overnight
loans.
◉ What is the deposit rate and bank rate?. Answer: Financial
institutions don't have to borrow from each other to balance their
payments—they can also use the Bank of Canada.
, They can deposit money with us at the deposit rate for one night or
borrow money from us at the bank rate for one night.
◉ What is the Operating band (Bank of Canada). Answer: The range
between the deposit rate and the bank rate is called our operating
band. It can vary in size.
Currently, the range is one-quarter of a percentage point wide, with
the deposit rate equal to the target rate.
This is called a floor system, because the target is at the floor of the
operating band
e.g. if the Bank sets the policy interest rate at 2.25%
the lower end of the range is also 2.25%—our deposit rate
the higher end of the range is 2.5%—our bank rate
also the deposit rate (lower range of the operating band) is the
target for the overnight rate
◉ what is the corridor system. Answer: Before 2020, we generally
kept the range one-half of a percentage point wide, with our policy
interest rate sitting in the middle.
