Unit 4:12 Advice Suitability

Question 1

Key Mortgage Advice Suitability Questions:

Answer 1

1. Eligibility: Does client meet all requirements (income, borrowing amount)?
2. Repayment Style: Does client prefer monthly capital repayment or interest-only option?
3. Mortgage Term: Any specific term length client has in mind for their mortgage?

Question 2

Key Mortgage Advice Suitability Questions 2:

Answer 2

4. Stability Needs: Does client prefer fixed/capped payments, and how do they feel about interest rate changes?
5. Initial Payments: Does client want to keep initial payments low (discount or low-start mortgage)?
6. Early Repayment: Is client planning to pay off mortgage early, and can they do it without fees?

Question 3

Key Mortgage Advice Suitability Questions 3:

Answer 3

7. Fancy Features: Does client want special features like payment breaks or other flexibility?
8. Credit Check: How’s the client’s credit score and will it support the mortgage they want?
9. Cash Upfront: Does client have cash for fees/deposit or need to add fees to the mortgage?

Question 4

Key Factors in Mortgage Terms

Answer 4

• Monthly Budget: Affordability and payment schedule considerations
• Age Matters: Age affects maximum term length and retirement planning
• Penalties: Early repayment charges and other potential fees
• The Short vs Long: Term length impacts monthly payments and total interest paid

Question 5

Mortgage Risks

Answer 5

• Missing payments puts your home at risk of repossession
• High loan-to-value borrowing is risky if property prices fall
• Repayment method choices affect long-term security (capital repayment vs interest-only)
• Interest rate changes can impact affordability
• Early repayment charges may apply if circumstances change
• Mortgage term length affects overall cost and monthly affordability

Question 6

Mortgage Risks (continued):

Answer 6

• Interest rate choices are crucial - selecting the right product for your circumstances
• Fixed rates protect against rises but may cost more if variable rates drop lower
• End of fixed/discount terms can lead to payment shock when reverting to variable rates
• Investment vehicles linked to interest-only mortgages might underperform
• Choosing wrong mortgage type may not align with long-term financial goals
• Changing circumstances (income, family situation) may affect affordability

Question 7

Risk Assessment - Client Suitability:

Answer 7

• Personal feelings on risk - how does the client see and tolerate risk?
• Past money decisions - what’s the client’s financial history like?
• “What if” scenarios - playing out positive and negative scenarios to gauge reactions
• Hypothetical financial events - how they feel about potential situations that could impact finances
• Client attitude to risk forms a key part of mortgage product recommendation
• Helps determine suitable fixed vs variable rate recommendations

Question 8

Interest Only Mortgages

Answer 8

• Lenders must conduct formal reviews at least once during mortgage term (MCOB 11.6.49)
• Reviews check if repayment strategy is still on track to repay the capital
• If strategy underperforming, lender will discuss alternative options
• Borrowers must engage with these reviews or risk default