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LP2 > Mortgages > Flashcards

Mortgages Flashcards

1
Q

What is a mortgage?

A

A loan secured against a property.

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2
Q

What type of insurance protects against an individual being unable to repay their loan due to accident, sickness or unemployment?

A

Mortgage Payment Protection Insurance (MPPI)

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3
Q

What are the two main mortgage repayment types?

A
  1. Capital and interest repayment.

2. Interest-only.

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4
Q

With what type of mortgage do monthly payments consist of part repayment of the capital owed on the mortgage and part interest charge?

A

Capital and interest repayment mortgages.

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5
Q

What happens to the outstanding balance of the loan in a capital and interest repayment mortgage if the borrower dies?

A

It becomes a debt due on the estate.

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6
Q

What is the most popular type of mortgage?

A

Standard variable rate mortgages.

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7
Q

What are the FOUR types of variable rate mortgages?

A
  1. Standard variable rate mortgages.
  2. Tracker mortgages.
  3. Discounted mortgages.
  4. Capped rate mortgages.
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8
Q

What type of variable rate mortgage would charge a rate based on the Bank of England base rate?

A

Standard variable rate mortgages.

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9
Q

In what type of variable rate mortgage does the interest ‘track’ an interest rate?

A

Tracker mortgages.

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10
Q

What are the TWO different indexes that a tracker mortgage could usually track either of?

A
  1. Bank of England base rate.

2. London Interbank Offered Rate (LIBOR).

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11
Q

What does LIBOR stand for?

A

London Interbank Offered Rate.

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12
Q

What is the name of the index that represents the rates at which banks lend to each other?

A

London Interbank Offered Rate (LIBOR).

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13
Q

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?

A

Discounted mortgages.

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14
Q

Which is the type of variable rate mortgage that imposes a limit above which the interest rate will not rise?

A

Capped rate mortgages.

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15
Q

What are the TWO most common flexible mortgages products?

A
  1. Offset mortgages.

2. Current account mortgages.

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16
Q

With what type of flexible mortgage product does the customer have their mortgage, savings and current account with one provider?

A

Offset mortgages.

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17
Q

What is the main difference between an offset mortgage and a current account mortgage?

A

Only one current account is used in a current account mortgage whereas offset mortgages hold the customer’s mortgage, savings and current account.

18
Q

What is necessary to insure that the capital of an interest-only mortgage will be paid off at the end of the term?

A

A mortgage repayment vehicle.

19
Q

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?

A

Interest-only mortgages.

20
Q

In what event would an endowment policy guarantee to pay a lump sum equivalent to the outstanding mortgage debt?

A

On death.

21
Q

What was the issue with the PPI mis-selling scandal?

A

Policies were often sold with no real chance of a claim being possible.

22
Q

How are premiums usually paid for MPPI?

A

Monthly or annually.

23
Q

Who is the benefit paid to for MPPI when a claim is made?

A

To the insured individual.

24
Q

When would MPPI be paid?

A

In the event the insured is unable to work due to accident, sickness or compulsory redundancy.

25
Q

What is the deferred period for MPPI?

A

After a maximum of 60 days off work.

26
Q

What is usually the maximum payable term for MPPI?

A

12 months or two years.

27
Q

What is the tax on MPPI benefits?

A

Benefits are paid tax free

28
Q

Between what ages must an individual be to take out MPPI?

A

18-64

29
Q

Using what as a mortgage repayment vehicle guarantees that the outstanding mortgage debt will be paid if the policyholder dies during the term?

A

Endowment policies.

30
Q

In which of the two main mortgage repayment types is a repayment vehicle necessary?

A

Interest-only.

31
Q

What TWO types of term insurance can include CIC that pays out in the event of a specified critical illness?

A
  1. Decreasing term insurance.

2. Level term insurance.

32
Q

A mortgage protection policy is an example of what type of term insurance?

A

Decreasing term insurance.

33
Q

With what type of term insurance does the amount of cover go down each year but the premium remains fixed?

A

Decreasing term insurance.

34
Q

With what type of term insurance do the premiums payable and amount of cover remain fixed?

A

Level term insurance.

35
Q

With which type of term insurance does cover cease when premiums stop being paid, and there is no surrender value?

A

Decreasing term insurance.

36
Q

What is the name of the procedure of extracting money from your current assets to secure against a loan?

A

Equity release.

37
Q

At what age do equity release products become available?

A

55.

38
Q

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?

A

Equity release products.

39
Q

What is the name of the type of life assurance that can be used as an interest only mortgage repayment vehicle?

A

An endowment.

40
Q

What is the mortgage lender entitled to do if the borrower becomes unable to repay the outstanding loan?

A

Sell the property.

41
Q

How is the monthly mortgage payment calculated for capital and interest mortgages?

A

The amount of loan X the interest rate = £monthly figure

LP2 (6 decks)

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