Mortgage Repayment Methods Flashcards
How is a low-cost with profit endowment is structured?
How does a unit-linked endowment work?
Low cost with profit -
Investment and life assurance - as the investment grows the life assurance decreases. There is always enough to cover the mortgage.
Unit linked - premiums used to buy units in investment funds. The objective is to ensure the value of the units increases to provide a sum at least large enough to clear the mortgage.
In the first year of capital repayment mortgage, repayments are mainly interest. True or false?
True
Capital repayment. Mortgages offer borrowers the possibility of a capital surplus at the end of the term. True or false?
False
Cat hey has a capital repayment mortgage of £150,000 over a 25 year term. The interest rate is 3% on an annual rest basis and her monthly repayment is £711. Calculate how much capital she will repay in the first year?
£150,000 divided 100 x 3 = £4500 (interest)
£4500 divided 12 = £375 (monthly interest)
£711 - £375 = £336 (monthly capital)
£336 x 12 = £4032 (first year of capital)
£4,032
Greg has a capital repayment mortgage on which the interest rate has just increased. Greg’s lender has agreed that he can maintain his monthly repayments at the level prior to the rate increase. What affect will this have?
A) the mortgage term will decrease
B) the mortgage term will increase
C) the mortgage term will not be affected
D) Greg’s lender will require him to make overpayments in the future
B) the mortgage term will increase
One advantage of an interest only mortgage is that the capital is guaranteed to be repaid at the end of the term. True or false?
False
Gordon wishes to arrange an interest only mortgage to buy his new property. Which of the following repayment strategies would be most unlikely to be acceptable to a lender?
A) an ISA funded monthly
B) allocating his quarterly bonuses to reduce the capital
C) a potential inheritance as the beneficiary of his 65 year old aunts will
D) a unit linked endowment policy
C) a potential inheritance as the beneficiary of his 65 year old aunts will
Retirement interest only mortgages require the lender to review the repayment vehicle at least once during the mortgage term. True or false?
False
The daily rest basis of calculating interest is advantageous to people who are often late with their mortgage repayments. True or false?
False
Jenny’s mortgage is on an annual review basis, the last review was on 31st December last year, when the interest rate was 4%. What would be the consequences if the interest rates rise to 5% from July to December?
A) the capital owed would have reduced on 1 January this year.
B) the capital owed would have increased on 1 January this year.
C) there would be no difference in the capital owed.
D) Jenny’s mortgage payments would reduce from 1 January this year.
B) the capital owed would have increased on 1 January this year.
Which of the following is excluded from the APRC calculation?
A) valuation fee
B) higher lending charges
C) redemption charges for sealing the mortgage deed
D) early repayment charges
D) early repayment charges
