Topic 19&20

Question 1

Borrowers, who want to be able to budget precisely for their mortgage payments, would be best served by a:

A. low start mortgage
B. discounted mortgage
C. cap and collar mortgage
D. fixed rate mortgage

Answer 1

D. fixed rate mortgage

Question 2

Jeff and Linda’s mortgage interest rate goes up by just 0.25% when their lender announces a general 1% increase. This could be because they have what type of mortgage?

A. Fixed rate
B. Discounted rate
C. Capped rate
D. Collared rate

Answer 2

C. Capped rate

Question 3

A discounted rate mortgage offers a reduction in:

A. interest rate
B. legal fees
C. endowment premiums
D. survey fees

Answer 3

A. interest rate

Question 4

Tracey’s mortgage lender has charged her an arrangement fee. For which type of mortgage is she LEAST likely to have applied?

A. Fixed rate
B. Standard Variable
C. Capped
D. Discounted

Answer 4

B. Standard Variable

Question 5

A MAXIMUM rate of interest set for a mortgage loan, is known as the:

A. Discounted rate
B. Low rate
C. Cap
D. Collar

Answer 5

C. Cap

Question 6

What penalty is likely to be applied if a cash back mortgage is redeemed within a year of being taken out?

A. None
B. Charging of an administration fee
C. Redemption penalty of several months’ interest
D. Claw back of some or all of the cash back

Answer 6

D. Claw back of some or all of the cash back

Question 7

A fixed rate mortgage is an appropriate choice for a borrower who believes that:

A. A interest rates will fall.
B. house prices will fall.
C. interest rates will rise.
D. house prices will rise.

Answer 7

B. house prices will fall.

Question 8

Bob and Carol’s mortgage interest rate falls by just 0.25% when their lender announces a general 1% decrease. This could be because they have what type of mortgage?

A. Fixed rate
B. Discounted rate
C. Capped rate
D. A Cap and Collared rate

Answer 8

D. A Cap and Collared rate

Question 9

On a discounted rate interest-only mortgage, at the end of the discount period the capital outstanding will have:

A. increased greatly.
B. increased a little.
C. reduced by a small amount.
D. remained the same.

Answer 9

D. remained the same.

Question 10

Which of the following could be considered to be an advantage of a Base Rate tracker mortgage over a standard variable rate mortgage, both offered by the same lender?

A. An arrangement fee is unlikely to be payable.

B. An early repayment charge is unlikely to apply.

C. The borrower is protected from arbitrary interest rate increases imposed by the lender.

D. The interest rate charged will not exceed a pre-determined level.

Answer 10

C. The borrower is protected from arbitrary interest rate increases imposed by the lender.

Question 11

Which of the following statements is correct in respect of a five-year fixed rate mortgage offered by Eastern Bank?

A. It cannot be redeemed during the five-year period.

B. The Bank is likely to charge an arrangement fee.

C. The rate charged will always be higher than the bank’s standard variable rate.

D. The rate charged will always be lower than the bank’s standard variable rate.

Answer 11

B. The Bank is likely to charge an arrangement fee.

Question 12

Which of the following statements is correct in respect of a discounted rate mortgage?

A. The interest rate charged does not change in line with the lender’s standard variable rate during the discounted rate period.

B. During the discounted rate period the rate charged may fall but will not be increased.

C. The total amount of interest that is underpaid is recovered by the lender over the term remaining after the discounted rate period ends.

D. The interest rate charged during the discounted rate period always falls and rises in line with the lender’s standard variable rate.

Answer 12

D. The interest rate charged during the discounted rate period always falls and rises in line with the lender’s standard variable rate.

Question 13

Neville is buying his first home and, although he has a good income, he only has sufficient savings for the deposit and the mortgage related expenses. He would like to purchase some furnishings, which product might be most suitable for him?

A. A capped rate mortgage
B. A shared ownership mortgage
C. A cash back mortgage
D. A fixed rate mortgage

Answer 13

C. A cash back mortgage

Question 14

Chris and Angela have been notified by their lender that the standard variable rate has increased from 5.9% to 6.5% but the interest rate on their mortgage account has only increased by 0.1 %. Which type of mortgage do they have?

A. A capped rate mortgage
B. A fixed rate mortgage
C. A stabilised mortgage
D. A discounted mortgage

Answer 14

A. A capped rate mortgage

Question 15

Which of the following statements in respect of a cash back mortgage is correct?

A. A high purchase price always means a higher cash back.

B. A high loan-to-value ratio usually means a lower cash back.

C. A low purchase price usually means no cash back.

D. A low loan-to-value ratio always means a higher cash back.

Answer 15

B. A high loan-to-value ratio usually means a lower cash back.

Question 16

Who would be most attracted to a capped rate mortgage?

A. Mike, who believes interest rates have reached an all-time high.

B. Eric, who believes interest rates will rise in the short to medium term.

C. Ken, who believes interest rates will fall in the short to medium term.

D. Daniel, who believes interest rates have stabilized.

Answer 16

B. Eric, who believes interest rates will rise in the short to medium term.

Question 17

Sue has recently arranged a mortgage with an interest rate that is guaranteed to be 1.75% below the lender’s standard variable rate for the first 3 years. Sue’s monthly payment at the end of the three-year period will therefore:

A. remain unchanged
B. increase or decrease depending on the SVR at that time
C. decrease
D. increase

Answer 17

D. increase

Question 18

Shirley and Theresa each borrowed £60,000 from the Monroe Building Society. They both took advantage of the same cash back deal but Shirley received considerably less than Theresa. Why was this the case?

A. Theresa provided a larger deposit than Shirley.

B. Shirley was a first-time buyer, whereas Theresa was buying her second property.

C. Shirley provided a larger deposit than Theresa.

D. Theresa purchased a new property, whereas Shirley’s was 50 years old.

Answer 18

A. Theresa provided a larger deposit than Shirley.

Question 19

Which one of the following might correctly be regarded as the major disadvantage of a foreign currency mortgage?

A. The interest rate charged is likely to be higher for a sterling variable rate loan.

B. If sterling declines in value against other major currencies the outstanding capital will increase in sterling terms.

C. If sterling increases in value against other major currencies the monthly payments are likely to increase in sterling terms.

D. If sterling increases in value against other major currencies the capital outstanding is likely to increase in sterling terms.

Answer 19

B. If sterling declines in value against other major currencies the outstanding capital will increase in sterling terms.

Question 20

Which of the following statements is correct in respect of the Ijara version of a Sharia compliant mortgage?

A. Lender purchases the property and sells it to the borrower at the end of the agreed term.

B. Monthly payment made by the client includes an element of rent.

C. Loan is interest free and no profit is made by the lender.

D. Monthly payment made by the borrower is fixed for the term of the mortgage.

Answer 20

B. Monthly payment made by the client includes an element of rent.

Question 21

Tom and Sally both have £100,000 25-year repayment mortgages. Tom’s mortgage has a fixed interest rate of 4.75% and Sally has a capped rate of 5.50%. Both rates apply for two years. Which of the following statements is true?

A. Sally may pay less than Tom at some point.

B. Sally’s payments will increase in the third year.

C. Tom will pay a lower rate than Sally in the third year.

D. Tom will pay less than Sally throughout the first two years.

Answer 21

A. Sally may pay less than Tom at some point.

Question 22

Which of the following statements is correct of Sharia compliant mortgages?

A. Only the Ijara method involves the payment of interest to the lender.

B. The Murabaha method involves the payment of rent to the lender.

C. Under the Murabaha method, the property is purchased by the lender and sold to the applicant at a higher price.

D. Under the Ijara method the lender purchases the property and immediately sells it to the applicant.

Answer 22

C. Under the Murabaha method, the property is purchased by the lender and sold to the applicant at a higher price.

Question 23

Which of the following might correctly be regarded as an advantage of a foreign currency mortgage?

A. If sterling declines in value against other major currencies the outstanding capital will increase in sterling terms.

B. If sterling declines in value against other major currencies the monthly payments are likely to decrease in sterling terms.

C. If sterling decreases in value against other major currencies the capital outstanding is likely to increase in sterling terms.

D. Interest rates abroad may be lower than in the UK.

Answer 23

D. Interest rates abroad may be lower than in the UK.

Question 24

Sandra is considering a £150,000 interest only offset mortgage with a variable rate of 6.5%. After meeting the costs of the mortgage, she will have £15,000 in a deposit account, earning 4% interest. Assuming no changes to interest rates, how much will she pay her lender each year if she offsets her savings?

A. £8,775
B. £9,075
C. £9,270
D. £9,750

Answer 24

A. £8,775