TOPIC 3 Flashcards
What would happen to an existing mortgage on a property that is used as security for a lifetime mortgage?
As the new mortgage will be secured as a first charge, the existing mortgage must be repaid - either from the borrower’s own funds or more likely the proceeds of the release, with the balance being used for the borrower’s needs.
In what circumstances may a lender waive the early repayment charge?
A lender may waive the early repayment charge if the borrower chooses to repay their plan within three years of a spouse, partner or joint applicant passing away or moving into long-term care.
In what circumstances will a lifetime mortgage applicant be required to undergo an affordability check?
Where a customer wishes to arrange a lifetime mortgage under which regular interest payments are made, the FCA affordability rules applying to a “normal” interest only mortgage apply unless the customer has the option to convert to interest room-up at any time of their choosing during the mortgage term.
What is the difference between a cash Lifetime mortgage and a drawdown plan?
As less is borrowed initially, the effect of interest being compounded is reduced, resulting in less money being owned at the end of the term than would otherwise be the case.
What is the difference between a hybrid lifetime mortgage and serviceable plan?
With a hybrid lifetime mortgage, the plan typically starts as an interest-only mortgage, but it can be converted to a lifetime mortgage in the future.
Serviceable plans ate typically lifetime interest roll-up mortgages that permit voluntary payments up to a specified amount.
What is the difference between a cash lifetime mortgage and a drawdown plan?
The cash plan provides an initial lump sum that can be used as the homeowner wishes.
- Withdraw a small initial lump sum and then regular monthly withdrawals;
or
- Withdraw lump sums as and when required.
What would be the impact of choosing an escalated annuity?
Payment would increase each year by a fixed percentage or in like with the retail Prices Index. The initial payments would be lower than a level annuity.
What is meant by the term “loan to value”?
The ratio between the value of the loan taken out and the value of the property as a whole, expressed as a percentage.
Under an inheritance protection guarantee, if a customer only needs 75% of the maximum loan available o them, what percentage of their home’s future value can be guaranteed for their beneficiaries?
The remaining 25% of their home’s future value can be guaranteed for their beneficiaries.
How does downsizing protection benefit a borrower?
The borrower can repay their plan without an early repayment charge if they move to a home outside of the lenders’s lending criteria. This may be applicable after an initial five-year period.
