Unit 4 – Topic 12 Flashcards
Suitability
Interest-rate risk could be reduced by selecting which of the following interest rate options? (12.3)
A. Capped
B. Tracker
C. Discounted
D. Variable
A. Capped
Because interest rates can rise, any increase in the amount of repayments may put pressure on The borrower’s ability to service the mortgage loan. A capped rate may be suitable in containing interest rate risk.
In a mortgage context, the primary purpose of psychometric profiling is to assess : (12.3.1)
A. The borrower’s credit rating and ability to afford the mortgage.
B. The borrower’s objective ability to cope with financial loss.
C. The borrower’s preference for a particular investment as a repayment vehicle.
D. The borrower’s psychological attitude to risk.
D. The borrower’s psychological attitude to risk.
With psychometric profiling the adviser uses software to assess the client’s general attitude to risk.
The MCOB rules relating to interest-only mortgages require lenders to: (12.4)
A. include the cost of an appropriate repayment strategy in the affordability assessment.
B. inform all applicants that they must select a suitable repayment vehicle.
C. recommend a specific repayment vehicle and ensure the applicant takes it out.
D. refuse any interest-only applications unless the applicant is a high net worth
individual
A. include the cost of an appropriate repayment strategy in the affordability assessment.
MCOB 11 states that if there’s a repayment vehicle in place, the cost must be included in the affordability assessment.
In relation to the term of the mortgage, which of the following would not be considered one of
the key considerations ? (12.2)
A. the health of the applicant
B. the age at which the customer would like to have repaid the mortgage
C. the possibility of the customer repaying the mortgage early
D. with a term that extended into retirement, whether there would be sufficient income.
A. the health of the applicant
The health of the applicant would not be a key consideration when a suitable mortgage term is being considered.
For an interest-only mortgage, how often must the lender carry out a review of the borrower’s repayment strategy? (12.4)
A. At least once during the term.
B. Whenever the borrower requests it.
C. At least once every five years.
D. Halfway through the term
A. At least once during the term.
For interest-only mortgages, with the exception of bridging loans and lifetime mortgages, the customer’s repayment strategy must be checked at least once during the mortgage term.
Which of the following would not be considered a ‘credible’ repayment strategy for an interest-only mortgage under MCOB rules ? (12.4)
A. Regular deposits into a savings or investment product
B. Sale of assets, such as another property
C. Intention to use a possible inheritance
D. Using bonuses to make regular partial repayments of capital
C. Intention to use a possible inheritance
Intending to use an expected, but uncertain inheritance to repay a mortgage would be seen as an unacceptable repayment strategy.
Roger and Janet are both aged 45 and are looking to purchase a house ; they feel that a 25- year repayment term would be affordable. They are planning to wind down gradually in around 10 years’ time and fully retire in their early 60s. What should their mortgage adviser consider primarily, before making a firm recommendation ? (12.2)
A. Their risk profile
B. The investments they already have in place to repay the loan
C. The expected income from their mid-50s
D. The fact that they can’t have a mortgage loan which takes them past retirement age
C. The expected income from their mid-50s
Their adviser would need to consider whether the couple’s level of income in 10 years’ time will be sufficient to cover the repayments.
Steve is aged 66 and retired. He has an interest-only mortgage which is about to finish. With no savings and very little income, which of the following repayment options isn’t suitable ? (12.4)
A. Lifetime mortgage
B. Home reversion plan
C. Downsizing
D. Extending the mortgage
D. Extending the mortgage
Extending the mortgage will mean Steve has to continue the payments on his interest-only mortgage and if he has no savings and little income, how will he be able to afford to do that?
Where the borrower has a repayment vehicle in place to support an interest-only mortgage, how must it be included in the lender’s affordability assessment,
if at all ? : (12.4)
A. Basic quality-of-life expenditure
B. Committed expenditure
C. Basic essential expenditure
D. It cannot be included
B. Committed expenditure
If there’s a repayment vehicle (such as an endowment policy) in place to support the mortgage, its cost must be included in the affordability assessment as committed expenditure.
Roger and Janet are in the process of buying their first home. Their attitude to risk is cautious.
Which of the following types of mortgage would be the most suitable? (12.3)
A. ISA-linked interest-only
B. Interest-only backed by a unit-linked endowment
C. Capital and interest repayment mortgage
D. Part repayment, part interest-only
C. Capital and interest repayment mortgage
Because the couple have a cautious attitude to risk, it’s important for them to ensure that the
mortgage loan can be repaid by the end of the term. A repayment mortgage is their best option.
