Mortgages Flashcards
What is a mortgage?
A loan secured against a property.
What type of insurance protects against an individual being unable to repay their loan due to accident, sickness or unemployment?
Mortgage Payment Protection Insurance (MPPI)
What are the two main mortgage repayment types?
- Capital and interest repayment.
2. Interest-only.
With what type of mortgage do monthly payments consist of part repayment of the capital owed on the mortgage and part interest charge?
Capital and interest repayment mortgages.
What happens to the outstanding balance of the loan in a capital and interest repayment mortgage if the borrower dies?
It becomes a debt due on the estate.
What is the most popular type of mortgage?
Standard variable rate mortgages.
What are the FOUR types of variable rate mortgages?
- Standard variable rate mortgages.
- Tracker mortgages.
- Discounted mortgages.
- Capped rate mortgages.
What type of variable rate mortgage would charge a rate based on the Bank of England base rate?
Standard variable rate mortgages.
In what type of variable rate mortgage does the interest ‘track’ an interest rate?
Tracker mortgages.
What are the TWO different indexes that a tracker mortgage could usually track either of?
- Bank of England base rate.
2. London Interbank Offered Rate (LIBOR).
What does LIBOR stand for?
London Interbank Offered Rate.
What is the name of the index that represents the rates at which banks lend to each other?
London Interbank Offered Rate (LIBOR).
What is the type of variable rate mortgage where the interest rate is set at a percentage rate lower than the standard variable rate for a fixed initial period?
Discounted mortgages.
Which is the type of variable rate mortgage that imposes a limit above which the interest rate will not rise?
Capped rate mortgages.
What are the TWO most common flexible mortgages products?
- Offset mortgages.
2. Current account mortgages.
With what type of flexible mortgage product does the customer have their mortgage, savings and current account with one provider?
Offset mortgages.
What is the main difference between an offset mortgage and a current account mortgage?
Only one current account is used in a current account mortgage whereas offset mortgages hold the customer’s mortgage, savings and current account.
What is necessary to insure that the capital of an interest-only mortgage will be paid off at the end of the term?
A mortgage repayment vehicle.
With what type of the main two mortgage repayment types does the FCA require lenders to undertake a detailed assessment of the proposed repayment strategy before granting a loan?
Interest-only mortgages.
In what event would an endowment policy guarantee to pay a lump sum equivalent to the outstanding mortgage debt?
On death.
What was the issue with the PPI mis-selling scandal?
Policies were often sold with no real chance of a claim being possible.
How are premiums usually paid for MPPI?
Monthly or annually.
Who is the benefit paid to for MPPI when a claim is made?
To the insured individual.
When would MPPI be paid?
In the event the insured is unable to work due to accident, sickness or compulsory redundancy.
What is the deferred period for MPPI?
After a maximum of 60 days off work.
What is usually the maximum payable term for MPPI?
12 months or two years.
What is the tax on MPPI benefits?
Benefits are paid tax free
Between what ages must an individual be to take out MPPI?
18-64
Using what as a mortgage repayment vehicle guarantees that the outstanding mortgage debt will be paid if the policyholder dies during the term?
Endowment policies.
In which of the two main mortgage repayment types is a repayment vehicle necessary?
Interest-only.
What TWO types of term insurance can include CIC that pays out in the event of a specified critical illness?
- Decreasing term insurance.
2. Level term insurance.
A mortgage protection policy is an example of what type of term insurance?
Decreasing term insurance.
With what type of term insurance does the amount of cover go down each year but the premium remains fixed?
Decreasing term insurance.
With what type of term insurance do the premiums payable and amount of cover remain fixed?
Level term insurance.
With which type of term insurance does cover cease when premiums stop being paid, and there is no surrender value?
Decreasing term insurance.
What is the name of the procedure of extracting money from your current assets to secure against a loan?
Equity release.
At what age do equity release products become available?
55.
Which type of products provide a lump sum that is treated as taxable income, and can therefore affect the amount of state benefits an individual is entitled to?
Equity release products.
What is the name of the type of life assurance that can be used as an interest only mortgage repayment vehicle?
An endowment.
What is the mortgage lender entitled to do if the borrower becomes unable to repay the outstanding loan?
Sell the property.
How is the monthly mortgage payment calculated for capital and interest mortgages?
The amount of loan X the interest rate = £monthly figure
