Topic 3 - Borrowing products

Question 1

mortgage

Answer 1

• long term loan to finance the purchase of a property

Question 2

first time buyers

Answer 2

• young people in the early stages of their working lives and on low incomes

Question 3

existing customers moving house

Answer 3

customers selling their home and buying another

Question 4

Costs of a mortgage

Answer 4

• survey of the property
• legal fees
• stamp duty
• mortgage application fee
• insurance
• cost of furnishing/fitting

Question 5

Loan to income

Answer 5

The ratio of the size of the loan to the income of the customer- the lower the income, the less the customer can borrow

Question 6

loan to value

Answer 6

ratio of the size of the loan to the value to the property

Question 7

Capital

Answer 7

Total Amount borrowed which has to be paid back fully

Question 8

interest

Answer 8

extra money paid additionally to the amount borrow

Question 9

repayment mortgages

Answer 9

where the monthly repayment includes capital and interest

Question 10

interest only mortgages

Answer 10

• 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

Question 11

fixed rate mortgages

Answer 11

• 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

Question 12

variable rate mortgages

Answer 12

• rate of interest is subject to change from the outset throughout the term of the mortgage

Question 13

discount mortgages

Answer 13

• 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

Question 14

offset mortgages

Answer 14

• 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

Question 15

loyalty mortgages

Answer 15

• these are to reward loyal customers e.g provider offering a discount on an application fee of £500

Question 16

rate charged on a mortgage depends on:

Answer 16

• 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

Question 17

Help to Buy loans

Answer 17

For first time buyers and home movers

Question 18

Buy to let mortgages

Answer 18

• long-term secured loan taken out by someone who wants to let a property to tenants

Question 19

Life insurance

Answer 19

• 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

Question 20

PPI

Answer 20

an insurance policy that covers loss of earnings due to accidents, sickness or involuntary unemployment during the loan period