Topic 13

Question 1

Which type of mortgage listed below allows overpayments, underpayments and payment holidays as standard features?

a. Cap and collar.

b. Fixed.

c. Flexible.

d. Variable.

Answer 1

c. Flexible.

Question 2

What is the main advantage of a capped interest rate option when taking out a mortgage?

a. If interest rates go up, the mortgage interest rate will be limited to a pre-set ceiling.

b. Interest rates are linked to the Bank of England base rate.

c. The amount payable is fixed for the duration of the capped rate.

d. There is a genuine discount off the normal variable mortgage interest rate.

Answer 2

a. If interest rates go up, the mortgage interest rate will be limited to a pre-set ceiling.

Question 3

Which of the following arrangements would help someone on a low income to become an owner-occupier of a property?

a. Buy-to-let mortgage.

b. Lifetime mortgage.

c. Shared ownership.

d. Tracker-rate mortgage.

Answer 3

c. Shared ownership.

Question 4

An advantage of a variable rate mortgage is that:

a. arrangement fees can always be added to the loan.

b. borrowers are able to benefit from reductions in interest rates.

c. first-time buyers are able to budget accurately in the early years.

d. repayments to the lender are lower than any other product.

Answer 4

b. borrowers are able to benefit from reductions in interest rates.

Question 5

Which of the following is a feature of a 25-year term repayment mortgage?

a. Repayments will be unchanged throughout the term of the mortgage.

b. The borrower will have to take out an investment policy to cover any shortfall at the end of the mortgage.

c. The capital amount does not reduce over the term of the mortgage.

d. The proportions of capital and interest making up the payment change over the term of the mortgage.

Answer 5

d. The proportions of capital and interest making up the payment change over the term of the mortgage.

Question 6

Susie’s interest on her savings account is:

a. always paid tax free.

b. paid with basic rate of income tax deducted.

c. paid with her marginal rate of tax deducted.

d. paid without tax being deducted at source but is potentially subject to income tax.

Answer 6

d. paid without tax being deducted at source but is potentially subject to income tax.

Question 7

Which of the following mortgage interest rate options involves payment of interest at a rate that is always below the lender’s standard variable rate (SVR) at the outset?

a. Capped-rate mortgage.

b. Collar rate mortgage.

c. Discounted rate mortgage.

d. Fixed-rate mortgage.

Answer 7

c. Discounted rate mortgage.

Question 8

Which of the following is one way in which a repayment mortgage differs fundamentally from an interest-only mortgage?

a. Life cover is not automatically built in.

b. Provided monthly repayments are made on time, the loan is guaranteed to be fully repaid at the end of the term.

c. The higher the interest rate, the higher the monthly repayment could be to the lender.

d. The interest rate charged is usually higher.

Answer 8

b. Provided monthly repayments are made on time, the loan is guaranteed to be fully repaid at the end of the term.

Question 9

Brendon’s lender charged him a fee for an insurance policy because his new mortgage was more than a specified percentage of the property value. It is incorrect to say that:

a) Brendon’s mortgage will be more than 75-80% of the property value.

b) The fee could be added to Brendon’s mortgage.

c) Brendon will have no further liability if a claim is made on the policy.

d) In the event of Brendon defaulting, the policy only protects the lender.

Answer 9

c) Brendon will have no further liability if a claim is made on the policy.

Question 10

Second charge loans:

a) become part of the existing mortgage.

b) are charged at a higher rate than first charge loans.

c) do not require equity in the property.

d) are regulated under the Consumer Credit Act 2006.

Answer 10

b) are charged at a higher rate than first charge loans.

Question 11

What type of mortgage product interest rate can vary, but cannot rise above a pre-set limit?

a) Discounted rate.

b) Base-rate tracker.

c) Fixed rate.

d) Capped rate.

Answer 11

d) Capped rate.

Question 12

Equity release is regulated by:

a) the Equity Release Council only.

b) the Financial Conduct Authority only.

c) the Financial Conduct Authority and the Equity Release Council.

d) the Prudential Regulation Authority only.

Answer 12

b) the Financial Conduct Authority only.

Question 13

Jeff and Alison have just bought a flat with a mortgage, but will also be required to pay rent to a housing association. This arrangement is referred to as:

a) equity release.

b) shared ownership.

c) equity share.

d) home reversion.

Answer 13

b) shared ownership.

Question 14

Which of the following is true in relation to credit cards?

a) No additional charges apply to overseas credit card transactions.

b) Credit card companies make a small payment to the retailer for each transaction.

c) Credit card interest rates are higher than most other forms of borrowing.

d) The whole balance must be repaid each month, usually within 25 days of a statement.

Answer 14

c) Credit card interest rates are higher than most other forms of borrowing.

Question 15

In relation to bridging finance:

a) open bridging is arranged on a long-term basis.

b) closed bridging interest rates are higher than for open bridging.

c) closed bridging has a feasible repayment strategy.

d) open bridging is less risky for the lender than closed bridging.

Answer 15

c) closed bridging has a feasible repayment strategy.

Question 16

Secured lending can only be arranged on land or property.

True or False?

Answer 16

False: although property is the most common, borrowing can be secured on a range of assets.

Question 17

Barbara, aged 70, has heard she can use her property to provide some extra cash as and when she needs it. She would like to leave as much of the property’s value to her two children as possible. Which arrangement would best satisfy her needs?

a) A home reversion plan.

b) A drawdown lifetime mortgage.

c) A home income plan.

d) A lifetime mortgage.

Answer 17

b) A drawdown lifetime mortgage.

As Barbara doesn’t need a large lump sum immediately, a plan that would allow her to take money in stages would be best. A drawdown lifetime mortgage would allow her to do this, and as interest is only charged on the money withdrawn, the roll-up would be much lower than if she had taken a large initial lump sum from a standard lifetime mortgage. The slower roll-up of interest would mean more equity when the plan ended and so more left for her children. A home reversion plan would involve her selling all or part of the property to a provider, which could mean nothing would be left for the children.

Question 18

Which of the following is incorrect for a discounted-rate mortgage?

a) There is usually a penalty if the loan is repaid before a specified date.

b) The discount is from the lender’s standard variable rate.

c) The payable rate is directly linked to the Bank of England base rate.

d) The monthly mortgage payment can vary.

Answer 18

c) The payable rate is directly linked to the Bank of England base rate.

Question 19

Which of the following is true in relation to mortgages?

a. A remortgage is a loan secured on only a second property.

b. A remortgage is an additional loan from a lender that is different to the one that holds the original mortgage.

c. A second mortgage is an additional secured loan from a lender that is different to the one that holds the original mortgage.

d. A second mortgage results in additional funds being borrowed from the lender that holds the original mortgage.

Answer 19

c. A second mortgage is an additional secured loan from a lender that is different to the one that holds the original mortgage.