3. Borrowing Products Flashcards

Question 1

Q

What is the main reason people borrow over a long period?

Answer

A

to fund large expenditure
e.g. house, car, university

Question 2

Q

Why are repayments over a long period?

Answer

A

the monthly repayments need to be small enough to be affordable
to fit into their personal budget, they need to repay over a long period of time

Question 3

Q

Why is using a short term borrowing product for a long term purpose bad?

Answer

A

this can be done by the process of ‘rolling over’ a credit card or an overdraft - on a credit card the holder might pay back thus months balance + then borrow again immediately so that they can reach the same debt level by the end of the month
this process can easily escalate + get out of hands - the product may then be withdrawn
the length of the loan should reflect the type + size of expenditure and should be related to affordability of mostly repayments

Question 4

Q

Why is owning a home important?

Answer

A

gives a sense of security + belonging - and an incentive to maintain the property in a good condition
good way of saving for retirement - once a person pays of their mortgage they own the property + no longer have to pay to live in it - don’t have to pay rent in their old age

Question 5

Q

What is a mortgage?

Answer

A

very long-term loan to finance the purchase of a property
the loan is secured on the property being bought - this means the person buying the property signs a document (deed) to agree that
if they can not continue meeting the repayments, the lender can claim the property back + sell it to pay off the remaining debt

Question 6

Q

What are the different groups of mortgage borrowers?

Answer

A

first-time buyers
existing customers moving home
existing customers switching mortgages
existing customers increasing mortgages

Question 7

Q

Who are first-time buyers?

Answer

A

traditionally young people in the early stages of their working lives + on relatively low incomes
as house prices have risen in relation to earnings + lenders have imposed stricter conditions - many people have to save for several years to build up a deposit + cannot afford to buy until they are in their 30s

Question 8

Q

Who are existing customers moving home?

Answer

A

these customers are selling their home + buying another
they may be moving into a new area, buying a large home because their family has grown or downsizing because they cannot afford the cost of their present one
they have to pay of their existing mortgage from proceeds of the sale of their property + take out a new mortgage

Question 9

Q

Who are existing customers switching mortgages?

Answer

A

These are people are not moving home but have found a better deal with a different provider

Question 10

Q

Who are existing customers increasing their mortgage?

Answer

A

these borrowers want to increase the amount they owe on their home, usually because they need the money for some other purpose - e.g. building an extension, or paying for a life event
the lender will allow them to do this only if their is sufficient equity in the property (difference between the amount of new increased mortgage and the value of the property) + if the person can afford the repayments of the new mortgage

Question 11

Q

Process of arranging a mortgage

Answer

A

buyer approaches lender
lender works out how much it will lend based on - affordability criteria + amount of buyers deposit
buyer decides the period over which they want to repay
legal processes to buy property are carried out
buyer makes repayments every month for the period agreed - at the end the buyer owns the property OR buyer fails to keep up with repayments + the lender may repossess the property + sell it to recover the money lent to borrower

Question 12

Q

Who can take out a mortgage?

Answer

A

can be taken out by an individual or by two or more buying a home together
not available to anyone below the age of 18 as customer must have full legal capacity to borrow

Question 13

Q

When must the mortgage be repaid in full?

Answer

A

by their retirement date
lenders may extend the mortgage term beyond the maximum age if there is evidence that the customer will have enough income beyond retirement

Question 14

Q

Costs to a person buying a home?

Answer

A

survey of the property
legal fees
stamp duty if the property is more than a certain value
a mortgage application fee
insurance
cost of furnishing + fitting the property

Question 15

Q

How is the amount of the mortgage loan determined?

Answer

A

how much they can afford to repay
in the boom led up to the financial crisis (2007-8) banks allowed many people to borrow too much, - such customers became over-indebted, they risk losing their property if they cannot keep up with the repayments
affordability is crucial + providers now have to be careful before offering a mortgage loan
providers now ask more detailed questions about mortgage applicants than in the past - especially in relation to their income + expenditure

Question 16

Q

What two aspects decide how much a provider will lend to a mortgage provider?

Answer

A

loan to income (LTI)
loan to value (LVI)

Question 17

Q

What is loan to income (LTI)?

Answer

A

loan to income (LTI) is the ratio of the size of the loan to the income of the customer
the lower someone’s income = the less they can borrow

Question 18

Q

How is LTI calculated?

Answer

A

basic annual salary + any extra annual income (e.g. overtime, bonus, child benefits) - monthly commitments (e.g. loans, credit cards, store cards)
the provider is calculating the persons discretionary income - the amount of money left over after making necessary payments
the provider then multiples the discretionary income by a figure (e.g. 3 or 4) that reflects its assessment of the customer’s creditworthiness

Question 19

Q

How much are mortgage lenders allowed to lend?

Answer

A

since 1 October 2014 - mortgage lenders can only lend more than 4.5 times income to 15% of their total new residential mortgage applicants
the restriction mainly affects buyers in London where house prices are Hugh
it only applies to mortgage providers who lend more than £100,000 million per year

Question 20

Q

What is loan to value (LTV)?

Answer

A

the ratio of the size of the loan to the value of the property
since the property is being held as security for the mortgage provider, it is important for the provider to make sure that there is a margin between the amount it lends and the value of the property if it has to be sold

Question 21

Q

What is the equity of the owner?

Answer

A

the difference between the property value and the amount lent
a provider might lend between 60% to 90% of the value of its home being bought, depending on the type of mortgage, and sometimes with a minimum + maximum amount

Question 22

Q

How does the mortgage term affect the repayments?

Answer

A

other things being equal, the longer the mortgage period, the lower the amount of monthly repayments
no matter how many years the mortgage runs, the capital sum will remain the same but the total amount of interest paid will be higher

Question 23

Q

What is a typical mortgage period?

Answer

A

25 years but a customer may choose a longer one or shorter one
repaying over 30 or more years could be the only option for those on low income + only a small deposit to keep up with the monthly repayments + to buy the home they want
someone with a higher income + a large deposit may want to pay the mortgage off over a shorter period such as 15 years

Question 24

Q

How does the age of the borrower affect the mortgage term?

Answer

A

the bank will want to know that the borrower will be of working age throughout the period of the mortgage
a young person or couple in their 20s could get a mortgage repayable over 30 years or perhaps longer
someone aged 50 who expects to retire at 65 would normally get a 15 year loan

Question 25

Q

What are the types of mortgage payments?

Answer

A

capital - the total amount they borrowed + this has to be payed back in full
interest - the borrower must pay interest on the amount borrowed over the period of years of the mortgage

Question 26

Q

What are the two main mortgage repayment schemes?

Answer

A

repayment mortgages
interest only mortgages

Question 27

Q

What are repayment mortgages?

Answer

A

most common type
monthly repayment instalments calculated by provider in a way that included some capital + some interest
the proportions of capital + interest changes in each instalment change but the customer is not aware of this
the amount of the instalment does not change, unless it is a variable rate mortgage + the interest rate changes
at the end of the mortgage period, the customer has repaid all the capital + interest - completely settled their debt

Question 28

Q

What are interest-only mortgages?

Answer

A

the monthly repayment covers only the interest on the whole amount borrowed for the whole mortgage period
at the end of the period the borrower still owes the full amount borrowed + must repay this capital sum in one payment
in order to do this, the borrower must have a financial plan in place to afford the repayment + it is the lender’s responsibility to check that this plan will succeed

Question 29

Q

A way to pay off the capital sum at the end of an interest-only mortgage?

Answer

A

endowment insurance policy
the borrower aims to build up the capital sum in an insurance policy that matured at the end of the mortgage period
it includes life insurance so that the mortgage will be paid off if the borrower died before the end of the term

Question 30

Q

What are the monthly repayment for an interest-only mortgage?

Answer

A

lower than a repayment mortgage
but the customer also has to be pay into the repayment investment plan + the total amount spent each month may not be very different from a repayment mortgage

Question 31

Q

Why are interest-only mortgages less common?

Answer

A

during the 1980s + 90s they were very popular + providers made a lot of money selling not only mortgages but also insurance policies that people had to buy as repayment plans
but interest rates fell + the return on the insurance policies fell - after a few years it was clear the maturity value of the policies would not be enough to cover the capital sum
people would have to settle the difference out of their funds or by borrowing from somewhere else
this was classed as a mis-selling + some customers have made claims for compensation

Question 32

Q

What are part interest-only and part repayment mortgages?

Answer

A

a mixture of the two mortgage types
part of the monthly instalment represents capital but it is not the full amount of capital that would have been included in a repayment mortgage
therefore the borrower must have a repayment plan in place to be able to pay the capital shortfall at the end of the term

Question 33

Q

What are the risks with interest rates on mortgages?

Answer

A

interest paid on a mortgage is a significant proportion of the total amount paid back over the mortgage period + is a large part of the monthly repayments
the borrower is exposed to risk that interest rate might rise - this would make their instalments more expensive + they may be able to afford to pay them

Question 34

Q

How should people approach the risk of interest rates on mortgages?

Answer

A

mortgage borrowers are always advised not to borrow to the limit of what they can afford
instead they should leave themselves a margin of safety so that they can continue to repay their mortgage even if e.g. interest rates rise and the monthly repayments increase

Question 35

Q

Can you switch mortgages?

Answer

A

there’s a lot of flexibility in the mortgage market these days - customers are expected to ‘shop around’
they can either switch to a different mortgage with the same provider (although they may have to pay an early repayment fee) or they can move to a different provider

Question 36

Q

What is a fixed rate mortgage?

Answer

A

fixes the interest rates for a stated number of years at the beginning of the mortgage
this benefits the customer if interest rates rise during the fixed period as they continue paying the lower fixed rate
but they can not benefit from a fall in interest rates as they are contracted to continue paying the fixed rate

Question 37

Q

Why do people choose fixed rate mortgages?

Answer

A

depends partly on how they expect interest rates to move over the next few years - however it is hard even for experts to predict future interest rates + customers usually take advice from their provider
a fixed rate mortgage also provides certainty that they monthly repayments will not change over the agreed period + it helps customers to draw up their budget

Question 38

Q

What happens at the end of a fixed rate mortgage period?

Answer

A

the interest rate becomes variable for the remaining term of the mortgage
e.g. a provider might offer a ‘two-year fixed’ mortgage which charges the fixed rate for the first two years and then charges a variable rate for the remaining term
there is a danger that interest rates may have risen across the whole market during the fixed rate period + the customer is suddenly faced with a significant rise in monthly instalments
therefore, borrowers are advised to note interest rate movements + budget for any rise

Question 39

Q

What fee do fixed rate mortgages charge?

Answer

A

most change an early repayment fee
this means that if the borrower decides to repay or switch the mortgage during the fixed-rate period, they will have pay a fee to the provider
e.g. 3% on the balance repaid

Question 40

Q

What is a variable rate mortgage?

Answer

A

the borrower pays a rate of interest that is subject to change from the outset and throughout the term of the mortgage
some variable rate mortgages are linked directly to the lenders basic mortgage rate - standard variable rate (SVR)
although some providers use their own term for it, and it often changes when the Bank of England changes the Bank rate

Question 41

Q

What is the interest rate risk with variable rate mortgages?

Answer

A

if the interest rate rises, the monthly repayments increase
but if interest rates falls, the repayments decrease

Question 42

Q

Advantages to variable rate mortgages?

Answer

A

the borrower does not risk coming to the end of a fixed-rate period + then not being able to pay the higher SVR or having to pay the costs of switching to a different product
it is easier to absorb a higher monthly repayment if small increases happen gradually rather than facing a large increase overnight

Question 43

Q

What is the tracker?

Answer

A

common form of variable rate mortgage
the interest rates charge ‘tracks’ changes in some other specific interest rate
usually either the Bank of England bank rate or the lenders own ‘base rate’ which is connected to Bank rate but not always immediately mirrors all changes by the Bank of England
for business and competition reasons sometimes lenders may delay changing their mortgage rates or may change them by a different amount to the Bank rate changes

Question 44

Q

How long does the tracker rate apply for?

Answer

A

may apply for a specific number of years or for the lifetime of the mortgage

Question 45

Q

What is a discounted mortgage?

Answer

A

a variable rate mortgage that gives the customer a set discount off the provider’s SVR (or what ever name the individual provider gives to this) for an agreed period e.g. 2 years
the rate charged can still rise or fall but the customer benefits from lower initial monthly payments

Question 46

Q

Who are discount mortgages suitable for?

Answer

A

for borrowers who are on a moderate income but expect their income to rise over the next few years

Question 47

Q

Disadvantages of discounted mortgages?

Answer

A

there is an early repayment fee
customers also take the risk that the lower repayment over the first few years will give them an unrealistic idea of their ability to afford the mortgage
they may find themselves in difficulties when they have to step up to the higher payment later in the term

Question 48

Q

What are offset mortgages?

Answer

A

sets the interest that would have been earned on the borrowers savings and current accounts against the interest owing on the mortgage
so they either make lower monthly repayments or continue to pay the same amount each month but reduce the number of years of the mortgage term
they can still withdraw their savings although doing this will reduce the benefit of the offset

Question 49

Q

Why do people use offset mortgages?

Answer

A

some people would prefer to use the savings to reduce the amount borrowed + so have a lower loan-to-value ratio - this could enable them to secure a lower interest rate - but they would lose access to their savings
the offset mortgage allows them to pay less interest on the mortgage but to retain the flexibility provided by their savings by giving up interest rate earned on them
the customer then has ready money in case of a financial emergency

Question 50

Q

How an offset mortgage works?

Answer

A

£150,000 mortgage
£20,000 savings -> no interest is earned on savings - as no interest is earned there is no tax on savings interest to pay
£130,000 net balance -> interest is paid on net balance only

Question 51

Q

What are loyalty mortgages?

Answer

A

some providers offer loyalty mortgages to reward their loyal customers
e.g. discount on application fee
loyalty rates are becoming popular way to retain mortgage customers at the end of fixed term deals as well - banks offer existing mortgage customers lower rate if they agree a new mortgage deal with the bank if they meet certain requirements

Question 52

Q

What are mortgages to help first time buyers?

Answer

A

house prices are high, young people do not have much money in savings and providers are much more cautious in their assessment of affordability than they were before the financial crisis
some providers have introduced schemes whereby the savings of a family member can be linked to a mortgage loan for a first time buyer
e.g. the family member pays 10% of the purchase price of the home into a specific savings account for these years - the home buyer then only needs a minimum 5% deposit

Question 53

Q

What decides the interest rate charges on mortgages?

Answer

A

whether the product is fixed rate or variable rate mortgage
in the case of a fixed rate mortgage, the number of years for which the rate is fixed
the loan to value (LTV) ratio - usually the larger the deposit paid + the smaller the LTV ratio, the lower the interest rate since the provider has a greater margin of security + therefore a lower risk of losing its money
whether the customer qualifies for a loyalty mortgage - if they do, the rate will be slightly lower
whether the customer is remortgaging the property - a provider might offer a lower rate to customer of another provider to encourage them to switch

Question 54

Q

What is the application fee?

Answer

A

majority of mortgage products have a one off application fee
the cost varies depending on the product or provider
usually somewhere in the range between £500 to £1000

Question 55

Q

What are home purchase plans?

Answer

A

products that allow Muslims to finance the purchase of property + comply with Islamic religious law (Sharia law)

Question 56

Q

What does sharia law forbid?

Answer

A

The payment or receipt of interest
this is because one party would gain at the expense of another without regard to the value of the goods traded
a concept that conflicts with the Islamic principle of equality

Question 57

Q

What does sharia law allow?

Answer

A

the sharing of risk and profit

Question 58

Q

What is the Ijara method?

Answer

A

the provider buys the clients selected property
the provider then sells the property to the client for the same price under a promise to purchase agreement
repayments are spread over a term of up to 25 years
the provider is registered of the property over the repayment term - paying a monthly amount that combines both capital repayment and+ rent for the lease

Question 59

Q

Repayments under Ijara method?

Answer

A

monthly payments fixed for 12 years at a time
it is then reviewed to allow for any adjustment to the rental element, these changes will usually reflect changes in external interest rates
under sharia law the rent is even as a fair price for using the property and so there is no conflict of principle
at the end of the payment term the property is transferred to the client - early repayment is possible in this period
the monthly payments tend to be higher than conventional mortgages - rent paid is the providers profit

Question 60

Q

What is ‘diminishing musharaka’

Answer

A

a variation of the Ijara method
means during the term of the finance, ownership of the property is gradually transferred from the lender to the purchaser rather than this taking place at the end of the agreement

Question 61

Q

What is the Murabaha method?

Answer

A

the provider buys the property at and agreed price + then sells it immediately to the client at a higher price
the exact price depends on the repayment term, which can be up to 15 years
the higher price charged reflects the profit element for the provider
first payment of 20% of the property value is usually required
the property is registered in their name rather than the providers

Question 62

Q

What schemes do not qualify for the Murabaha method?

Answer

A

Properties purchased under local authority ‘Right-to-buy’ schemes

Question 63

Q

Why is the Murabaha method less popular?

Answer

A

more expensive overall
less flexible in terms of early repayment

Question 64

Q

What is loan forbearance?

Answer

A

the FCA Mortgages and Home Finance: Conduct of Business source book (MCOB) states that providers must treat customers fairly + exercise forbearance (patience)
this includes considering all the options that will help the borrower, setting up a payment plan that is practical for them + not putting pressure on the borrower through to many phone calls or letters
another example is the provider allowing the customer to stop making repayments for a limited time (payment holiday) if the period if unemployment or sickness is likely to be short
they may also allow reduced payments for a limited time or to extend the mortgage term in order to reduce monthly repayments

Answer 65

A

Contact their lender as soon as possible

Answer 66

A

provides support to customers who are have financial difficulties + helps to maintain good relations between the customer and provider
it performs a social function in that it prevents people from becoming homeless + placing a burden on local authorities + social services
it enhances the providers reputation + reflects its citizenship/ corporate social responsibility policy
it may mean the provider does not have to write off the loan + absorb the loss in its accounts

Answer 67

A

once a customers temporary financial difficulties have been resolved (e.g. they have a new job or recover from illness + can earn an income again), they will be faced with higher repayments to make up the shortfall from making reduced payments or no payments
the lender is keeping the loan its books as an asset but it may have to write off part of of all of the loan later - it is not recognising weakness of the loan - it should make provisions against its forbearance policy

Answer 68

A

economic activity fell dramatically - unemployment rose
quite a lot mortgage customers therefore will experience difficulties repaying their loans
the FCA has set out guidelines to firms to enhance support they should offer customers in these difficult times

Answer 69

A

risk that the borrower will default (be unable to repay loan)
mortgages are secured on the property they are used to purchase, so as a last result lenders can repossess the property + sell it to repay the loan
## repossessions could mean the lender will still have to write off some of debt however - the value of the property could fall below the amount owed if market prices fell - negative equity - therefore there isn’t a sufficient amount to clear the debt when the property is reposessed

Answer 70

A

the ability of people to buy and own homes depends on the availability of mortgages
the government intervenes in the mortgage market with various home ownership schemes to help those who cannot afford to buy a home

Answer 71

A

open to first time buyers + home movers on new build homes worth up to £600,000 in London and lower amounts elsewhere
outside London, the purchaser provides 5% of purchase price, the lender provides a mortgage of 75% and the government pays the remains 20% via an equity loan
this means the govt. ‘owns’ 20% of the property
the home is in the borrowers name + can sell it at anytime but they have to repay the equity loan either when they sell or at the end of mortgage repayments - they can also pay the equity without selling

Answer 72

A

31 December 2022

Answer 73

A

available from April 2017 + can be used to buy a first home or save for retirement

Answer 74

A

provided through housing associations
the borrower buys a share of their home (between 10% and 75%) for which they take out a mortgage + pay rent on the remaining share
the borrower can buy more shares in their home later

Answer 75

A

household must earn £80,000 a year or less - £90,000 in London
must be first time buyer
be renting a council or housing association property
parallel schemes available for older people and people with disabilities

Answer 76

A

people argue that the people who are being helped to buy a home cannot really afford to repay a mortgage + are more likely to default
critics say the schemes will destabilise the mortgage market + warn they should not be permanent

Answer 77

A

long term secured loan taken out by a person who is buying a property with the intention of letting it to tenants
the owner becomes of the property becomes the landlord + is actually running a small business
the aim is to borrow the money to buy the property + then to cover the repayments with the rents received

Answer 78

A

the rent available
the borrower must show that the rental income will be sufficient to cover the mortgage repayments

Answer 79

A

the value of the property might fall
there may be vacant periods when a tenant can’t be found
the tenant may fail to pay the rent or cause damage

Answer 80

A

the level of demand in various areas + choose a location accordingly
consider the type of people (families, professional singles, elderly couples etc.) they would rent their property to + choose a property that would suit those tenants
consider the prices of the property in their chosen area + how that might change in the future - if prices rise they might benefit from a capital gain
appointing a letting agent to find tenants, collect rent + deal with routine problems - unless they know what they are doing + have enough time to spare

Answer 81

A

there will be a number of costs in addition to mortgage repayments - e.g. stamp duty, legal fees, insurance, furniture + fittings, service charges, maintenance + repairs
the landlord needs to draw up a budget to show the expected income + outgoings for the period of the mortgage, or at least several years ahead
they need to rake into account possible interest rate increases
consider how their budget will be effected by vacant periods - no rent, have to absorb costs themselves
it’s a business so they need to consider their tax position - income tax on any profit made + draw up proper accounts, also might have capital gains tax if they sell after a period

Answer 82

A

should ensure they have a valid tenancy agreement - a legally binding document that sets out legal rights + responsibilities of both the landlord + tenant
the landlord has a ‘duty of care’ to make sure that the property + its utilities are safe -e.g. safety checks on gas + electricity instalments, properties must adhere to fire regulations

Answer 83

A

a credit or ‘consumer finance’ contract that is provided by a finance company to someone buying high value consumer goods such as vehicles or furniture
it allows the customer to spread the cost of the items over an extended period of time, usually 2-5 years

Answer 84

A

the company lends all or part of the purchase price to the purchaser + the purchaser repays in instalments
the purchaser is hiring the goods and does not actually own the goods until the final payment has been made
this means while they are still making payments, the purchaser is not allowed to sell or dispose of the goods without the lenders permission

Answer 85

A

if the purchaser can’t afford the payments or no longer needs the good, they can terminate a hire purchase agreement in writing + return the goods at any time
they will have to pay all the instalments that are due up to the time the agreement ended
if the payments they have made come to less than 50% of the total price of the goods, they may have to make a payment so that 50% has been paid
if they have paid more than 50%, they will not have to pay anymore but they are not entitled to a refund

Answer 86

A

regulated by the Consumer Rights Act 2015 + all companies that offer them must be authorised by the FCA to do so
hire purchase contracts are secured - lender can repossess the goods without a court order if the purchaser falls behind with their repayments or has paid less than 1/3 of the total payment
if the purchaser has paid more than 1/3 the company must get a court order in order to repossess goods

Answer 87

A

sell the repossessed goods at auction + use proceeds to repay the outstanding debt
if this is not sufficient to settle the debt completely, the purchaser will be liable for the difference + for court costs

Answer 88

A

not with trader or retailer where the goods are bought but with a separate finance company with which the trader has an agreement
the finance company owns the good until the final instalment + purchase fee is paid

Answer 89

A

finance company might be subsidiaries to big banks - e.g. Black Horse Finance is part of Lloyds Banking Group + arranges finance for people to buy new and used cars, caravans, motor homes etc.
other finance companies are independent + often specialise in loans for particular purposes - e.g. Volkswagen Financial Services is a subsidiary of Volkswagen group + offers finance for people buying VW vehicles
the purchaser pays deposit + agrees monthly payments spread balance over agreed number of years - end of term the car belongs to purchaser

Answer 90

A

option offered by some financial companies - obtain the goods immediately but dont begin paying until a stated number of months later e.g. 6
e.g. after 6 months they can pay the outstanding balance or spread the cost over a longer period
curry’s do this

Answer 91

A

the price of the product purchased is spread over an agreed number of months + no interest is charged provided that payment is made in full by due date
but consumers need to make sure that they will be able to make make the final payment as interest on the whole amount is charged if they fail to do this
many of these schemes arrange the payments so that monthly repayments are small but the final one is large - this makes it harder for someone to pay off the debt in time + be forced to delay and be charged full interest

Answer 92

A

amid concerns that people could get into heavy debt during covid, plans were announced to regulate buy now pay later firms
firms need to do affordability checks before lending + treat customers fairly if they struggle to repay

Answer 93

A

a flexible porodcur that is offered by some finance companies for the purchase of new or nearly new vehicles
the customer chooses a car, the deposit they want to pay, the number of years they want the contract to run for + intended mileage of car
in return they receive fixed-cost motoring for the term of the contract
at the end of the term they can either buy the car for an agreed lump sum or they give the car back to the lender + walk away with no further obligation

Answer 94

A

the car being purchased is given a guaranteed future value (GFV), calculated by the lender + set for the period of the contract
the GFV plus deposit made by the customer are added together + deducted from cash price of the new car
the monthly repayments are calculated on the basis of the outstanding balance plus interest
in effect the purchase is financing the depreciation of the new car

Answer 95

A

not-for-profit government owned organisation set up to provide loans + grants to students in universities + colleges in the UK
it pays loans + non repayable grants to cover living costs + studying expenses + it provides loans to meet the costs of tuition fees which is paid directly to the university on behalf of the student

Answer 96

A

granted to the student to enable them to pay tuition fees of their course
not financially assessed
unis + colleges charge different annual fees for different courses up to a govt. set maximum
interest is charged on a tuition fee loan
paid in three instalments: 25% at beginning of term 1 and 2 and 50% at beginning of term 3

Answer 97

A

covers the living expenses incurred by students on full time courses
part of it is eligible students, regardless of their financial circumstances; part depends on income of students household
there is also a provision for extra weeks’ study + this is also financially assessed

Answer 98

A

depends on wheee the student lives, the year of their course, entitlement to other financial support such as bursaries
the maintenance loan is available once confirmation is received that the person is studying at the university or college
usually paid into the students bank account in three instalments, except Scotland it is paid monthly

Answer 99

A

when they have left uni + there income exceeds the minimum threshold

Answer 100

A

plan 1
- courses that began after 1 September 1998 and before 1 September 2012
- the earliest a student can start repaying their loan is the April after graduation or leaving their course
- they must be earning more than a specified minimum threshold + pay 9% of their gross income above this level
- repayments are usually taken by HM Revenue & Customs via PAYE system
- they continue depending on income, until loan has been fully paid off, the graduate turns 65, dies or becomes permanently unfit for work, or 25 years after the graduate became eligible to repay

Answer 101

A

courses that began after 1 September 2012
same as plan 1 - the earliest a graduate will start repaying the loan is the April after graduating or leaving their course
the earnings threshold is higher than plan 1 + since 2017 rises with inflation
loans are cancelled after 30 years after the April when they first became eligible to repay

Answer 102

A

unable to keep up with repayments due to loss of income from unemployment, illness, business fails or they might die during mortgage period
the property they are buying might lose value over the period of the loan - e.g. car or household goods - an appliance might have broken

Answer 103

A

people buying a house would hope it to keep value + expect it to gain value - however periods of economic downturn cause properties to lose value increasing
therefore the risk of negative equity - market value of property is less than the amount still owed on the mortgage
the bank would sell the property for less than the outstanding debt + would expect the borrower to pay the difference
someone in this situation would not only be losing their home but also continue owing money to the lender

Answer 104

A

they have lost their original deposit
they have a number of payments
they have to find somewhere else to live + pay moving expenses as well as rent
they have to face the stress + upheaval of losing their home - homeowners who have children sometimes view their home as valuable asset to leave their heirs when they die + feel especially distressed when this is no longer possible

Answer 105

A

people who are repaying a mortgage can take out a life insurance policy that remains in place during the period of the loan
for someone with a repayment mortgage, it would be taken out on a decreasing-term basis - the amount insured decreases as the capital sum is repaid
a life term life insurance would be suitable for someone with an interest-only mortgage

Answer 106

A

if the insured person dies during the mortgage term - a lump sum is paid out to cover outstanding debt
family of deceased are free of debt + own the property outright

Answer 107

A

PPI can apply to a mortgage or to a personal loan or hire purchase agreement
it covers loss of earnings due to accident, sickness or involuntary unemployment during the period of the loan
these policies are not cheap so the borrower must weigh up the cost against the risk of default on their loan

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3. Borrowing Products Flashcards

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