Suitability Flashcards
What are the three points an advisor should consider if the purpose of the mortgage is to consolidate debt?
The cost of increasing the period of the debt.
Whether it is appropriate to secure a previously unsecured loan.
If there are known payment difficulties it would be better to negotiate an arrangement with their creditors.
If there term of the mortgage will extend beyond the customers expected retirement date, what should the advisor consider?
How affordable the payments will be once the customer is dependent on pension income. For customers near retirement the advisor may need to see pension statements. For younger borrowers it may be enough to see pension provision. A prudent approach must be taken.
A) What is the minimum period over which lenders must consider the impact on affordability of potential interest rate increases?
B) What are the calculations of potential interest rate increases are based on?
A) five years from the start of the mortgage unless the mortgage is in a fixed rate for at least 5 years or the term is less than 5 years
B) the rate in place when the mortgage started.
If there are no contracts suitable for the customer’s needs and circumstances within the range available to the form, it should not make a recommendation. True or false?
True
John is 55 and is seeking a 20 year repayment mortgage. The lenders affordability assessment must only take into account his financial position at the time of the application. True or false?
False.
It is very likely John will retire before his mortgage is complete so the lender will need to assess affordability beyond retirement.
Duncan is keen to accrue as little interest as possible on his mortgage and is pressing the advisor to make as shorter term as possible. Of what what should the adviser make him aware?
A short mortgage term means that monthly repayments will be higher if he has a capital and interest mortgage.
If he opts for a interest only mortgage he will have to make large payments into a repayment vehicle than if he chose a longer term.
His choice of repayment vehicle over a short period may be restricted (such as ISA due to yearly limits).
It is not necessary to establish the customers attitude to risk when advising on mortgages because there is no investment exposure. True or false?
False
Interest only mortgages can carry the risk that the repayment strategy may not provide enough funds to repay the mortgage
There are other risks such as interest rates to consider.
Which of the following would be most likely to be considered a credible repayment strategy for an interest only mortgage?
A) planning to use a promised inheritance from a relative.
B) relying on the increase in value of the property to provide equity that can be released to pay off the loan.
C) using the proceeds from the sale of another property owned by the borrower.
D) Using a pension commencement lump sum to pay off the loan.
C) using the proceeds from the sale of another property owned by the borrower.
As long as the property value meets the cost of the outstanding loan/mortgage.
A pension commencement lump sum may also be viable if it’s value also meets the amount required to cover the loan/mortgage.
For an interest only mortgage, how often must the lender carry out a review of the borrowers repayment strategy?
A) at least once during the term
B) whenever the borrower requests it
C) at least once every five years
D) halfway through the term
A) at least once during the term
