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CeMAP 1 > Topic 13 > Flashcards

Topic 13 Flashcards

1
Q

Peter takes a loan from a building society to buy a new house. He is the:

A. mortgagor
B. mortgagee
C. assignee
D. vendor

A

A. mortgagor

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2
Q

Which of the following is one way in which a repayment mortgage differs fundamentally from a full endowment mortgage?

A) The higher the interest rate, the higher the monthly repayment to the lender

B) Separate life cover is required

C) The loan will be fully repaid at the end of the term

D) Interest is payable on the outstanding loan

A

B) Separate life cover is required

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3
Q

Which one of the following statements, about repayment mortgages, is TRUE?

A) The older the borrower, the higher the monthly repayment.

B) The shorter the term, the higher the total amount of interest paid.

C) The higher the interest rate, the higher the monthly repayment.

D) The longer the term, the higher the monthly repayment.

A

C) The higher the interest rate, the higher the monthly repayment.

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4
Q

Which one of the following is a feature of a repayment mortgage?

A. Repayments will be fixed throughout the term of the mortgage

B. The capital and interest payment proportions change over the term of the mortgage

C. The capital balance does not reduce over the term of the mortgage

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

A

B. The capital and interest payment proportions change over the term of the mortgage

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5
Q

If Kim and Chris opt for a repayment mortgage, the most suitable way to ensure that the loan will be repaid if one of them dies is by:

A. making contributions to a critical illness policy

B. taking out joint life decreasing-term assurance

C. investing in an endowment assurance

D. contributing to a permanent health insurance policy

A

B. taking out joint life decreasing-term assurance

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6
Q

What happens to the capital outstanding during the duration of an interest only mortgage?

A. It reduces by an even amount each year

B. Most capital is repaid towards the beginning of the term

C. Most capital is repaid towards the end of the term

D. It remains the same

A

D. It remains the same

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7
Q

What is the main advantage of using a pension plan to support an interest only mortgage?

A. They often run over a longer term

B. They are assigned to the lender

C. They guarantee to repay the loan

D. They benefit from favourable tax concessions

A

D. They benefit from favourable tax concessions

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8
Q

With a pension mortgage, the loan is repaid using the:

A. Open market option

B. Tax-free cash

C. Market value adjustment

D. Protected rights fund

A

B. Tax-free cash

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9
Q

Nick and Lynne are keen to take advantage of a better deal and remortgage with a new lender. However, their existing lender has informed them that if they move, they will have to pay an additional six months’ interest. The most likely reason for this is that:

A. they have a variable rate mortgage

B. they have arrears on their mortgage account

C. they have a fixed rate mortgage

D. their lender is reclaiming the valuation fee outlay

A

C. they have a fixed rate mortgage

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10
Q

Which one of the following types of mortgage provides a genuine reduction in the normal variable rates of interest?

A. Low start mortgage

B. Deferred interest mortgage

C. Low-cost mortgage

D. Discounted mortgage

A

D. Discounted mortgage

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11
Q

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 s 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

A

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

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12
Q

Which one of the following statements regarding a cap and collar mortgage is CORRECT?

A. They normally appeal to clients who believe rates are more likely to rise than fall

B. They are specifically aimed at clients with low loan to value ratios

C. They can only be used in conjunction with endowments

D. They are particularly appropriate when interest rates are falling

A

A. They normally appeal to clients who believe rates are more likely to rise than fall

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13
Q

Which one of the following is NOT an advantage of a flexible mortgage?

A. The ability to borrow further money for lump sum expenditure

B. Over payments are allowed so enabling early repayments

C. Unlimited further advances

D. The ability to have repayment holidays when clients’ budget is tight

A

C. Unlimited further advances

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14
Q

Which of the following is true in relation to re-mortgages and second mortgages?

A. A second mortgage is an additional loan from a new lender

B. A re-mortgage is an additional loan from a new lender

C. A re-mortgage is a way for a lender to charge a higher interest rate

D. A second mortgage increases the loan from the same lender

A

A. A second mortgage is an additional loan from a new lender

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15
Q

What type of mortgage scheme would help someone on low income to become an owner occupier?

A. Buy to Let

B. Shared ownership

C. Full endowment

D. Home reversion

A

B. Shared ownership

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16
Q

Dick and Margaret have had their mortgage for two years and are concerned that interest rates have fallen but their monthly payment to the lender has stayed the same. Which type of mortgage do they have?

A. A base rate tracker

B. A fixed rate

C. A discount rate

D. A capped rate

A

B. A fixed rate

17
Q

An advantage of a variable rate mortgage is that:

A. arrangement fees may be added to the loan.

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

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

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

A

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

18
Q

For which one of the following borrowers might a fixed rate mortgage be most suitable?

A. Bob who is convinced interest rates will fall sharply in the short term

B. Neil who believes interest rates will rise significantly in the near future

C. Rachel who feels that interest rates will stay the same for the next few years

D. Tony who feels that lenders should never charge arrangement fees

A

B. Neil who believes interest rates will rise significantly in the near future

19
Q

Clive, at age 27, started a stakeholder pension plan, which he intended to use to repay the capital under his interest only mortgage. His stated occupation is office manager. After how many years minimum, will he be able to access his pension?

A. 20 years

B. 23 years

C. 25 years

D. 28 years

A

D. 28 years

20
Q

Which is true of the capital repayments on a repayment mortgage?

A. It reduces by an even amount each year

B. Most capital is repaid towards the beginning of the term

C. Most capital is repaid towards the end of the term

D. It remains the same

A

C. Most capital is repaid towards the end of the term

21
Q

Which one of the following types of endowment will normally guarantee that the original mortgage loan will be repaid in full at the end of the term?

A. Qualifying unit-linked

B. Low start unit-linked

C. Non-profit

D. Low cost

A

C. Non-profit

22
Q

On a with-profits policy, a reversionary bonus is:

A. One that reverts to a minimum level in the event of a claim.

B. Declared each year and once declared and attached to the policy, it is guaranteed payable as long as premiums are maintained.

C. An irregular payment determined by the type of policy and the number of lives assured.

D. A payment made on maturity at the discretion of the assurance company.

A

B. Declared each year and once declared and attached to the policy, it is guaranteed payable as long as premiums are maintained.

23
Q

Which one of the following statements in respect of a unit-linked endowment policy is correct?

A. A pre-determined guaranteed benefit is payable on maturity of the policy.

B. The guaranteed sum assured only is paid on death of the policyholder before the maturity date.

C. The appropriate level of life cover is funded by encashing units on a monthly basis.

D. The value of the policy at any time is the number of units held multiplied by the offer price.

A

C. The appropriate level of life cover is funded by encashing units on a monthly basis.

24
Q

Compared to a full endowment, a traditional low cost endowment has a:

A. lower premium for a given death benefit but less guarantees on maturity

B. lower death benefit for a given premium but more savings

C. higher premium for a given guaranteed maturity value

D. higher premium for a given sum assured but more chance of bonuses

A

A. lower premium for a given death benefit but less guarantees on maturity

25
Q

If a low-cost endowment is used as a mortgage repayment vehicle, the mortgage is GUARANTEED to be repaid:

A. providing interest rates do not exceed 12%.

B. on death or maturity as long as premiums are paid.

C. as long as the policy is held for 25 years.

D. on death only.

A

D. on death only.

26
Q

Which one of the following describes an advantage which a unit-linked policy has over a with profit policy, for mortgage repayment purposes?

A. A guaranteed minimum maturity value

B. Tax relief on the premiums

C. The chance of a surplus at the end of the term

D. The possibility of repaying the loan early

A

D. The possibility of repaying the loan early

27
Q

Why have endowment policies become less popular as a capital repayment vehicle for mortgages?

A. Because of poor performance

B. Because of ‘front end loading’

C. Because of the lack of flexibility

D. Because of the lack of premium waiver benefit

A

A. Because of poor performance

28
Q

How does a unit linked endowment plan running alongside an interest only mortgage work in practice?

A. The client pays interest and capital to the lender and the policy covers the outstanding loan in the event of death

B. The client pays interest only to the lender and the policy aims to repay the capital at the end of the term or on earlier death

C. The client makes interest and partial capital repayments to the lender and the policy clears any capital debt on death or maturity

D. The client makes no payment to the lender and the policy pays off the accrued interest and outstanding capital on death or maturity

A

B. The client pays interest only to the lender and the policy aims to repay the capital at the end of the term or on earlier death

CeMAP 1 (25 decks)

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