Topic 12 Flashcards
Which of the following would not be considered a credible repayment strategy for an interest-only mortgage under MCOB rules?
a. A personal pension.
b. A stocks and shares ISA.
c. Eventual sale of another property owned by the borrower.
d. Potential inheritance.
d. Potential inheritance.
Jonathan and Martha do not want to take any unnecessary risks with their new mortgage and are considering a mortgage where the interest rate will not change for five years.
What risk, if any, does that type of arrangement expose them to during its term?
a. Fixed-rate risk.
b. Inflation risk.
c. It is risk free.
d. Repayment risk.
a. Fixed-rate risk.
Josh and Lexi are applying for their first mortgage. They know nothing about mortgages but want to take as little risk as possible.
Which of the following mortgages would be most suitable?
a. Repayment.
b. Interest-only.
c. ISA-linked.
d. Low-cost endowment-linked.
a. Repayment.
When considering a suitable term for a capital and interest mortgage, what guiding principle should the mortgage adviser adopt?
The:
a. shortest affordable term should usually be recommended.
b. term resulting in the lowest monthly cost should always be recommended.
c. term should normally be 25 years.
d. term should always run until the borrower’s intended retirement age.
a. shortest affordable term should usually be recommended.
Ray and Alicia, both aged 45, are looking to buy a house and feel that a 25-year repayment mortgage would be affordable. They plan to gradually wind down work from their mid-50s and retire fully in their early 60s.
What should their mortgage adviser consider primarily before making a firm recommendation?
a. The income they expect to have from their mid-50s onwards.
b. The investments they already have in place to repay the loan.
c. Their attitude to investment risk.
d. They cannot have a mortgage taking them past state retirement age.
a. The income they expect to have from their mid-50s onwards.
Bernice, a mortgage adviser, can only recommend mortgages offered by the building society she works for.
If none of the building society’s mortgage products are suitable for a particular client’s needs and circumstances, Bernice should:
a. ask the client to amend their requirements to match the mortgages available.
b. inform the client that she cannot make a suitable recommendation.
c. invite the client to apply for the mortgage on an execution-only basis.
d. recommend the mortgage from her building society that most closely matches the client’s needs.
b. inform the client that she cannot make a suitable recommendation.
Having considered Arthur’s mortgage needs, his mortgage adviser, Alison, is unable to offer a suitable mortgage product from within the range she has available to her.
What recommendation, if any, should she make?
a. None.
b. The next best product in terms of cost.
c. The next best product in terms of features.
d. The next best product in terms of risk.
a. None.
Rachel is a mortgage adviser working for a specialist sub-prime lender.
In what circumstances, if any, would it be acceptable for Rachel to recommend a sub-prime mortgage to a client with a good credit history?
It is not acceptable in any circumstances.
Only if Rachel can demonstrate that the client will not be disadvantaged in comparison with a suitable standard mortgage.
Only if Rachel states in writing before the recommendation is made that the firm can only recommend sub-prime products.
Only if the client signs a disclaimer confirming they understand that they may be able to obtain a better deal from an alternative lender.
Only if Rachel can demonstrate that the client will not be disadvantaged in comparison with a suitable standard mortgage.
