Mortgage Products - Demonstrate Competency

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Which type of mortgage offers a lower interest rate than the standard variable rate for a fixed time period?

Cashback mortgage
Fixed rate mortgage
Tracker mortgage
Discounted mortgage (correct)

What is the purpose of a discounted rate mortgage with 'teaser' rates?

To attract borrowers looking to minimize their initial payments (correct)
To offer cash incentives to new borrowers
To provide certainty of knowing they will not be affected by interest rate increases
To track market interest rates

What is the main characteristic of a cashback mortgage?

Borrowers pay a lower interest rate in exchange for an upfront fee
Borrowers receive a fixed amount of cash at the end of the mortgage term
Borrowers receive a percentage of the amount borrowed as cash (correct)
Borrowers can switch lenders without penalty

What is the key feature of a tracker mortgage?

The interest rate 'tracks' an index representative of market interest rates (D) Signup and view all the answers

Which type of mortgage is considered the most popular?

Standard variable rate mortgage (C) Signup and view all the answers

What factors do lenders take into account when setting their variable rates?

Customer demand and income flow from savers (A) Signup and view all the answers

Why do some people prefer a less volatile interest rate?

To have more security and stability (D) Signup and view all the answers

Which type of mortgage offers a fixed interest rate for a defined period of time?

Fixed rate mortgage (D) Signup and view all the answers

What is the purpose of offering an attractive fixed rate for a short period of time?

To get new business (A) Signup and view all the answers

Why should borrowers consider future trends in interest rates before taking a fixed rate mortgage?

To evaluate if a fixed rate may be useful based on future rate movements (B) Signup and view all the answers

Which type of mortgage usually has an early repayment charge if the mortgage is redeemed during the fixed rate period?

Variable rate mortgage (D) Signup and view all the answers

What is the key feature of a capped rate mortgage?

The pay rate will not exceed an upper threshold for a fixed period (C) Signup and view all the answers

What is the purpose of a collar in a cap and collar mortgage?

To ensure the rate will not fall below a specific lower level (C) Signup and view all the answers

What is the main advantage of a capped rate mortgage without a collar?

There is a maximum rate but the customer can benefit from rate decreases (A) Signup and view all the answers

Which of the following is NOT a feature of flexible mortgages?

Fixed interest rate for a defined period of time (B) Signup and view all the answers

Which of the following is a common restriction on flexible mortgages?

Restricted to employed people over 21 with a salary over £15,000 (C) Signup and view all the answers

What are flexible mortgages marketed under?

Personal choice mortgages (B) Signup and view all the answers

Which type of mortgage allows the customer to have their mortgage, savings, and current account with one provider?

Offset mortgage (B) Signup and view all the answers

What happens to any positive balances in the savings/current account with an offset mortgage?

They are offset against the negative mortgage balance (C) Signup and view all the answers

How do current account mortgages (CAMs) work?

They use only one account, which is a current account (C) Signup and view all the answers

What is the purpose of a drawdown facility in offset and current account mortgages?

To allow borrowers to access additional funds (D) Signup and view all the answers

Which one of these is true about mortgages with deferred interest?

The borrower pays interest on the full loan amount but only makes partial payments for a specific period of time. (D) Signup and view all the answers

Which of the following is a reason for the decline in availability of deferred interest mortgages?

More conservative lender attitudes (D) Signup and view all the answers

What is a key consideration for borrowers with mortgages with deferred interest?

Future affordability of increased payments (A) Signup and view all the answers

Which term is used to describe a mortgage that is part capital repayment and part interest only?

Hybrid mortgage (C) Signup and view all the answers

What is the purpose of converting part of a loan to capital repayment in a hybrid mortgage?

To safeguard the borrower in case of a projected shortfall (A) Signup and view all the answers

In the example given, what happens if the endowment policy produces the projected amount at maturity?

The loan will be paid off at the end of the term (D) Signup and view all the answers

Which of the following options is NOT a way to raise finance for buying a property abroad?

Taking a second charge with a different lender which is secured on a property that is already mortgaged (A) Signup and view all the answers

Which of the following statements about overseas lenders is true?

Overseas lenders often consider applications from non-residents (C) Signup and view all the answers

What additional risks and factors should a prospective borrower consider for obtaining a mortgage on a foreign property?

There are many additional risks and factors to consider (C) Signup and view all the answers

Which type of mortgage enables an individual/entity to buy a rental property with a loan secured on it?

Buy to let mortgage (B) Signup and view all the answers

What is the main advantage of a buy to let mortgage?

Potential for rental income and long-term capital growth (C) Signup and view all the answers

Which organization issued a statement of best practice on buy to let mortgage lending?

Council of Mortgage Lenders (D) Signup and view all the answers

What are shared ownership (equity share) and shared appreciation mortgages designed for?

First-time homebuyers (C) Signup and view all the answers

Which of the following is a common arrangement in shared ownership mortgages?

Purchasers buy a share of the property and the remainder is owned by the lender (A) Signup and view all the answers

What is the purpose of shared appreciation mortgages?

To allow lenders to take a stake of equity in the property (A) Signup and view all the answers

What is the process called when a borrower buys additional shares of a shared ownership property?

Staircasing (D) Signup and view all the answers

What is the main advantage of shared ownership mortgages?

Ability to sell a share of the property to a housing association (C) Signup and view all the answers

Which of the following is NOT a requirement for a foreign currency mortgage according to the FCA?

The firm must make the risk warning specific to the individual borrower (A) Signup and view all the answers

What is the purpose of the MCOB rules for foreign currency mortgages?

To limit the exchange rate risk to which the customer is exposed (D) Signup and view all the answers

What is the minimum requirement for construction supervision in a self-build mortgage?

The construction must be supervised by a qualified architect (A) Signup and view all the answers

Why are self-build projects considered high risk for borrowers and lenders?

All of the above (D) Signup and view all the answers

Which one of these is a possible consequence of taking a mortgage in a foreign country denominated in the currency of that country?

The borrower is exposed to currency risk (B) Signup and view all the answers

What is a key factor to consider when taking an overseas mortgage with a variable interest rate?

Interest rates are typically more volatile than in the UK (D) Signup and view all the answers

What is a possible consequence of buying property overseas?

Costs may be higher or lower than in the UK (C) Signup and view all the answers

What is a possible consequence of purchasing a property using UK funding?

A valuation is essential to ensure the property represents good value (A) Signup and view all the answers

Equity release provides a way of using the value of the property to improve finances.

Equity release allows older people to use the value of their property to improve their finances. (A) Signup and view all the answers

Equity release provides a way of using the value of the property to improve finances. Which of the following is a key distinction between a lifetime mortgage and a home reversion plan?

Lifetime mortgages have a prescribed redemption date, while home reversion plans do not. (A) Signup and view all the answers

Retirement interest-only (RIO) mortgages allow borrowers to raise funds equal to the shortfall amount. Which of the following is an accurate statement about RIO mortgages?

RIO mortgages are introduced to address problems encountered by borrowers with repayment vehicles that have performed well. (C) Signup and view all the answers

According to FCA handbook, a home purchase plan is structured in a way that makes it acceptable under Islamic law. Which of the following is true about home purchase plans?

Home purchase plans are structured as a sale and lease agreement, as interest is contrary to Islamic law. (A) Signup and view all the answers

Which government act first introduced the requirement to quote the Annual Percentage Rate (APR) in advertisements and illustrations for lending products?

Consumer Credit Act 1974 (C) Signup and view all the answers

What is the purpose of the Annual Percentage Rate (APR)?

To enable customers to compare different products in the market (D) Signup and view all the answers

Which costs are generally included in the calculation of the Annual Percentage Rate (APR)?

Interest charge and costs of setting up a loan (C) Signup and view all the answers

Which act introduced the concept of Annual Percentage Rate (APR)?

Consumer Credit Act 1974 (B) Signup and view all the answers

What does APRC stand for?

Annual Percentage Rate of Charge (C) Signup and view all the answers

What is the purpose of APRC 2?

To provide an additional means of comparison for mortgage products (D) Signup and view all the answers

Which method of calculating interest on a mortgage is generally considered fairer?

Interest calculated daily (B) Signup and view all the answers

What is the term used to describe when a borrower fixes their monthly mortgage payments for the entire year?

Annual review (B) Signup and view all the answers

What is a disadvantage of the annual review method of mortgage payments?

Borrowers have to wait until the next review for rate reductions to be reflected in their payments (D) Signup and view all the answers

Which type of mortgage calculates interest on a daily basis?

Flexible mortgage (B) Signup and view all the answers

Which method of interest calculation was commonly used by most lenders until the late 1990s and is still used by many lenders today?

Interest calculated annually (C) Signup and view all the answers

What is the main benefit of the annual rest method of interest calculation?

Simplicity (B) Signup and view all the answers

What happens if a borrower makes an early payment using the annual rest method of interest calculation?

The capital reduction will not be applied (C) Signup and view all the answers