Topic 23 - Interest-Rate Options

Question 1

Standard variable-rate mortgage:

Answer 1

The interest rate varies with market rates in general.

They tend to have lower arrangement fees than fixed-rate or capped-rate mortgages and do not usually carry early repayment charges.

Question 2

Discount-rate mortgage:

Answer 2

It offers a discount from the lender’s SVR for a given period.

Question 3

Tracker mortgage:

Answer 3

Variable-rate mortgages that follow a stated interest-rate benchmark.

Question 4

Some loans may be subject to compulsory purchase of an associated product such as:

Answer 4

-Buildings, contents and/or mortgage payment protection insurance.

Question 5

Fixed-rate mortgage:

Answer 5

The rate is fixed for an agreed period.

Question 6

Portability option:

Answer 6

This allows the borrower to take an existing arrangement to a new property without incurring an early repayment charge.

Question 7

Capped-rate mortgage:

Answer 7

There is a limit on the rate the borrower pays for a period. There is usually a collar too which is a lower limit.

Question 8

Flexible mortgage:

Answer 8

There is no specific definition of this but it will generally have the following features:

• Daily interest calculation
• The facility to make over-payments
• The facility to underpay
• The facility to take a payment holiday if circumstances warrant ti
• Portability
• Offset facility

Question 9

Offset mortgage:

Answer 9

Mortgage and savings are held in linked accounts. The savings are offset against the mortgage account, which means that mortgage interest is only charged on the balance.

Question 10

Flexible mortgages are generally suitable for who?

Answer 10

Those at the higher end of the market in terms of financial awareness.

Question 11

What product incentives might be offered?

Answer 11

• Waiver of valuation fee
• Waiver of legal fees
• Free insurance for a given period
• A cashback facility
• Portability