Topic 3 - Borrowing products Flashcards
mortgage
- long term loan to finance the purchase of a property
first time buyers
- young people in the early stages of their working lives and on low incomes
existing customers moving house
customers selling their home and buying another
Costs of a mortgage
- survey of the property
- legal fees
- stamp duty
- mortgage application fee
- insurance
- cost of furnishing/fitting
Loan to income
The ratio of the size of the loan to the income of the customer- the lower the income, the less the customer can borrow
loan to value
ratio of the size of the loan to the value to the property
Capital
Total Amount borrowed which has to be paid back fully
interest
extra money paid additionally to the amount borrow
repayment mortgages
where the monthly repayment includes capital and interest
interest only mortgages
- where monthly repayment covers only interest on the amount borrowed
- at the end of the mortgage period, the borrower still has to payback the full amount borrowed in one payment
- monthly repayments are lower than repayment mortgage schemes
fixed rate mortgages
- interest rate is fixed over a specified period of time
- fall in interest rates means that they won’t be able to benefit from lower repayments
- repayments do not change over the agreed period
- charges early repayment fee
variable rate mortgages
- rate of interest is subject to change from the outset throughout the term of the mortgage
discount mortgages
- a variable rate mortgage that gives a customer a set discount off the provider’s standard variable rate
- customer benefits from lower initial repayments
- charges early repayment fee
offset mortgages
- sets interest rate on savings and current accounts against the interest on the mortgage, which results in lower or fixed monthly repayments and a reduced mortgage period
loyalty mortgages
- these are to reward loyal customers e.g provider offering a discount on an application fee of £500
rate charged on a mortgage depends on:
- whether a product is fixed/variable
- number of years of which a mortgage is fixed
- loan to value ratio (larger deposit and smaller the LTV ratio, lower the interest rate)
- remortgaging the property
Help to Buy loans
For first time buyers and home movers
Buy to let mortgages
- long-term secured loan taken out by someone who wants to let a property to tenants
Life insurance
- a insurance policy where if an insured person dies during the mortgage term, the life policy pays out a lump sum that covers the amount of outstanding debt
PPI
an insurance policy that covers loss of earnings due to accidents, sickness or involuntary unemployment during the loan period
