Unit 6 Topic 20,21&22

Question 1

Which one of the following statements regarding interest payments on a
repayment mortgage is TRUE?
A The first year’s payments will be made up of mainly interest and then
progressively become a greater proportion of capital.
B The first year’s payments will be made up of mainly capital and then
progressively become a greater proportion of interest.
C The capital and interest elements remain constant throughout the term.
D All of the payment is interest on a repayment mortgage.

Answer 1

A The first year’s payments will be made up of mainly interest and then
progressively become a greater proportion of capital.

Question 2

A possible drawback of a capital and interest mortgage is that it:
A cannot be topped up.
B is always more expensive than other methods.
C may not fully repay loan.
D requires additional life assurance.

Answer 2

D requires additional life assurance.

Question 3

Fred’s premium on his low-cost endowment increased by £20 
 because:
A he chose a low start plan. 
B bonus levels reduced.
C his health deteriorated. 
D of the withdrawal of MIRAS.

Answer 3

A he chose a low start plan.

Question 4

The MINIMUM guaranteed maturity value of a unit-linked endowment policy is:
A the basic sum assured. 
B the total of premiums paid.
C 75% of total premiums paid.
 D not specified.

Answer 4

D not specified.

Question 5

A higher rate taxpayer can receive tax relief overall on his pension mortgage 
contributions at:
A 10% 
B 20% 
C 22% 
D 40%

Answer 5

D 40%

Question 6

Some borrowers like to feel that the amount they owe to the lender is being
reduced by their monthly mortgage payments. They should choose a:
A fixed rate mortgage.
B endowment mortgage.
C repayment mortgage.
D ISA mortgage.

Answer 6

C repayment mortgage.

Question 7

A low cost endowment is usually a combination of which of the following types of
assurance?
A With-profit endowment and level term assurance.
B Without-profit endowment and level term assurance.
C With-profit endowment and decreasing term assurance.
D With-profit endowment and increasing term assurance.

Answer 7

C With-profit endowment and decreasing term assurance.

Question 8

Which one of the following is FALSE with regard to ISA mortgages?
A Separate life assurance may be necessary.
B Only UK residents (for tax purposes) are eligible.
C All income and growth is tax free in the hands of the investor.
D The maximum regular monthly payment is £2,000 per month.

Answer 8

D The maximum regular monthly payment is £2,000 per month

Question 9

The MAXIMUM tax-free cash sum that can be taken from a personal pension
fund of £300,000 to repay an interest only mortgage is:
A £60,000
B £75,000
C £100,000
D £150,000

Answer 9

B £75,000

Question 10

Which of these statements is INCORRECT in relation to an ISA?
A The maximum contribution per tax year is £20,000.
B Joint ISAs can now be taken under the new rules.
C Growth of the fund is tax free in the hands of the investor.
D Dividends paid into an ISA are paid without deduction of income tax.

Answer 10

B Joint ISAs can now be taken under the new rules.

Question 11

Which interest accounting methodology fails to penalise late payers of their 
monthly payments?
A Annual review system 
B Annual rest system
C Daily interest 
D Fixed payments

Answer 11

B Annual rest system

Question 12

Jason would like to arrange a pension mortgage and has yet to start any pension arrangements. Based on his income of £28,000, what is the maximum in total
that can be paid into a personal pension this tax year to receive tax relief?
A £3,600
B £28,000
C £215,000
D £1,500,000

Answer 12

B £28,000

Question 13

Alison is looking for an interest payment method that will benefit her if she
makes some of her payments early. She should choose:
A fixed payments.
B annual rest.
C daily interest.
D annual review.

Answer 13

C daily interest

Question 14

John has a 20-year repayment mortgage for £75,000 on an annual rest basis. If
the interest rate is fixed at 6% for the first 12 months and the monthly
repayments are £7.30 per £1,000 borrowed, how much capital will he repay in the first year?
A £1,090
B £1,640
C £1,900
D £2,070

Answer 14

D £2,070

Question 15

Tom and Mary have an interest-only mortgage with a low-cost with-profits
endowment policy as the repayment vehicle. Which of the following statements
in respect of the policy is correct?
A Annual reversionary bonuses and a final terminal bonus may be added to the
basic sum assured, but these are not guaranteed.
B Annual reversionary bonuses and a terminal bonus may be added to the
guaranteed death benefit, but these are not guaranteed.
C Annual reversionary bonuses will be added to the basic sum assured, and
these are guaranteed.
D Annual reversionary bonuses may be added to the guaranteed death benefit,
but these are not guaranteed.

Answer 15

A Annual reversionary bonuses and a final terminal bonus may be added to the
basic sum assured, but these are not guaranteed.

Question 16

The amount available to repay an interest only mortgage from a unit-linked
investment depends on the price of the units on the repayment date. The price at
which the units are cashed in is known as the:
A bid price.
B cash price.
C offer price.
D reserve price.

Answer 16

A bid price

Question 17

Which of the following statements about a personal pension plan is
correct?
A At retirement the pension provides an income that is free of income tax under
current legislation.
B A maximum of 20% of the fund value can be taken as a tax-free lump sum on
retirement.
C Tax relief can be claimed on contributions to the plan.
D The lump sum and pension benefit can be taken at any time provided
contributions have been made for at least ten years.

Answer 17

C Tax relief can be claimed on contributions to the plan.

Question 18

Which of the following would provide a borrower with a high degree of certainty
that the loan will be repaid in full by the end of the mortgage term, together with
a cheap form of life assurance?
A A interest only mortgage supported by a stocks and shares ISA
B A low-start low-cost endowment policy.
C An interest-only mortgage with level term assurance.
D A capital repayment mortgage with decreasing term assurance.

Answer 18

D A capital repayment mortgage with decreasing term assurance.

Question 19

Which of the following is a benefit of using a unit-linked endowment policy in
conjunction with an interest-only mortgage?
A It is ideally suited to the low risk customer.
B The units can be cashed in at any time making it possible to repay the
mortgage early.
C Reversionary bonuses are normally credited to the policy each year.
D This type of policy will always have a fixed maturity date.

Answer 19

B The units can be cashed in at any time making it possible to repay the
mortgage early.

Question 20

Which of the following is EXCLUDED by a lender when calculating the annual 
percentage rate of charge (APRC)?
A Mortgage indemnity guarantee premiums
B Mortgage valuation fees
C Arrangement fees
D Associated life assurance premiums

Answer 20

D Associated life assurance premiums

Question 21

Which of the following is true in relation to Help to Buy ISAs and Lifetime
ISAs?
A Both can be invested in cash or stocks and shares but count towards the overall ISA
limit
B It is possible to invest in both types of ISA at the same time and receive bonuses from
both on buying a property
C The minimum age an investor can open a Lifetime ISA is 16
D There is a penalty for early withdrawal from a Lifetime ISA but not a Help to Buy
ISA

Answer 21

D There is a penalty for early withdrawal from a Lifetime ISA but not a Help to Buy
ISA

Question 22

One major difference between a low cost with profits endowment and a unit
linked endowment is that:
A holders of unit linked endowments benefit fully from the fund’s investment
performance but a with profits policy may not benefit fully from fund investment
performance
B the maturity value is guaranteed for a low cost endowment but not for a unit linked
C with profits bonuses are guaranteed to be paid annually but unit linked bonuses are
not guaranteed
D with profits policies charges are more transparent than those on unit linked policies

Answer 22

A holders of unit linked endowments benefit fully from the fund’s investment
performance but a with profits policy may not benefit fully from fund investment
performance

Question 23

The FCA requires life assurance companies to carry out a review of mortgage
endowments:
A every 2 years
B every 5 years
C once during the policy term
D annually during the last 5 years of the term

Answer 23

A every 2 years

Question 24

Grace has been informed that her unit linked endowment is unlikely to meet the
target mortgage amount on maturity. Typically what would be the most
appropriate way to ensure that the mortgage could be repaid by the end of the
term?
A increase the endowment premiums
B start a with profits endowment to fund the shortfall
C start an ISA to fund the shortfall
D switch the mortgage to a repayment basis

Answer 24

D switch the mortgage to a repayment basis

Question 25

Tony is aged 59 and has an interest only mortgage of £50,000 that is due to be
repaid soon. He has just retired with an income of £13,000 from his occupational
pension scheme which makes him a basic rate taxpayer. He also has a personal
pension fund of £150,000. If he chooses to use his personal pension to pay off his
mortgage, which of the following is true?
A Tony can take £37,500 tax free but must use the balance of the fund to buy an annuity or drawdown
B Tony can take £50,000 as a tax free sum to repay the mortgage and take the balance as income, subject to a cap on the maximum income
C Tony could repay the mortgage by taking a tax free lump sum of £37,500 and a
further £15,625 as a taxable lump sum
D Tony will not be able to take a tax free lump sum because he has already taken his occupational scheme benefits

Answer 25

C Tony could repay the mortgage by taking a tax free lump sum of £37,500 and a
further £15,625 as a taxable lump sum