Topic 13

Question 1

what is secured lending

Answer 1

When a borrower gives the lender the right to take possession of a specific asset if they fail to keep up repayments.

Question 2

What is unsecured lending

Answer 2

The lender does not have an asset to sell to recoup the laon. they have to rely on the agreement to repay. Thus interest rates are higher.

Question 3

What is a repayment mortgage?

Answer 3

Part interest and part capital of loan being paid.

Question 4

what a covenant for a mortgage?

Answer 4

A promise under terms of the mortgage to maintain property in good condition.

Question 5

when can an interest only mortage be arranged?

Answer 5

When the lender has obtained evidence that the borrorower has a credible repayment strategy/

Question 6

What are the two main issues to be addressed when taking out an interest only mortagage?

Answer 6

Putting in place a funding machanism to repay the debt at teh end of the term.
Ensuring there is sufficient to pay the debt on any death etc before end of contract.

Question 7

What are some popular methods of funding interest only mortagages?

Answer 7

Endownments, ISA, Pensions.

Question 8

what percentage can be taken from a pension tax free and how does it help mortagages?

Answer 8

25% and can be used as a vehicle to pay off mortgages.

Question 9

what is a stakeholder pension?

Answer 9

Simple low cost meeting government standards on charges and contributions.

Question 10

what are two financial benefits of a pension mortgage to an endownment?

Answer 10

Pension contributions wualify for tax relief/endowments do not
contributions invested are not subject to tax on income or capitol gains where as endowments are on both.

Question 11

why is lifetime allowance a problem with pension mortgages?

Answer 11

limits you to 25% tax free. e.g 1 million pound limit means you can only get 250k

Question 12

minimum pension age payment vehicle problem.

Answer 12

mortgage cannot be paid before retirement age

Question 13

name the 6 issues with using pension mortgages

Answer 13

lifetime allowance, min pension age, provider restrictions, impact on income in retirement, separate life assurance, assignment

Question 14

what is the difference with assignment between pension mortgages and endowment policies

Answer 14

pension mortgages the lender cannot take possession of the plan. endowment you can take possession and receive benefits directly

Question 15

two main benefits using isa as mortgage repayment vehicle.

Answer 15

1. tax free on capital gains
2. can be repaid early if funds grow quickly

Question 16

draw backs of using an ISA as a repayment vehicle

Answer 16

if growth rates are not aligning then adjustments need to be made regularly.

should the borrower die then the amount will likely be insufficient and a need for further life assurance.

the limits on annual contributions can make it hard to acrue the needed amount.

Question 17

what are the 9 types mortgages?

Answer 17

variable
capped
flexi
discounted
fixed
base rate tracker
low start
deferred interest
CAT standard

Question 18

variable rate mortgage

Answer 18

rise and all inline with interest rate

hard to predict future payments

Question 19

discounted rate mortgage

Answer 19

interest rate is a discount from standard variable rate

maybe penalties for early repayment

Question 20

fixed rate mortgages

Answer 20

interest fixed for a specific period

easier to budget
substantial arrangment fee and penalties/restrictions on switching

Question 21

capped rate mortgages

Answer 21

variable but cannot above the cap

allows to budget within parameters
can benefit from falls in interest rates

Question 22

base-rate tracker mortgage

Answer 22

interest moves up and down with changes in bank rate

Question 23

flexible rate mortgage

Answer 23

facility to under pay, over pay, take payment holidays

interest calculated on daily basis

Question 24

low start mortgage

Answer 24

repayment mortgage with lower initial payments during which capital is not repaid
higher payment required after initial period to achieve repayment of capital.

suits borrowers keen to keep outgoings low in early years

Question 25

Deferred interest mortgage

Answer 25

interest payments deferred until ater in the term

suits borrowers who expect their income to increase over the term

Not suitable for those who borrow a high proportion of the property value because of increased risk of negative equity.

Question 26

CAT Standard

Answer 26

Charges Access and Terms

Meets standards set by government.

Likely to appeal to borrowers who want clear stated limits on charges.

Question 27

what are the basic features a flexible mortgage should have?

Answer 27

Interest daily basis

Overpayments whenever without charges.

a facility to underpay

A facility to take a payment holiday.