MI32-33_CeMap.qxd 27/2/09 11:26 Page 3
CPD | 33
D - interest rate charged will always be less
particularly relevant on interest-only C - Because the monthly basis of calculating
than the lender's standard variable rate.
mortgages as the capital does not interest payable only comes into play at
decrease. the end of each monthly period, the
C - Whilst in most cases it is advisable, it is actual cost will be a little greater than
8. Nicky pays an arrangement fee of £150
not essential to have a repayment vehicle. the daily basis.
when applying for a five year fixed rate
D - The outstanding capital remains constant D - Because these methods relate to when
mortgage, with a one year 'overhang'. throughout the term and must then be capital is repaid, they achieve different
Which of the following statements is true?
repaid and there is no built in guarantee results with daily offering the cheapest
A - Early repayment charges will not
that this will happen. option.
usually apply.
B - Monthly payments will only increase
Q3 - Correct answer: B Q7 - Correct answer: A
when the Bank of England rate changes.
A - The capital repayment cost is £6.52 per A - Because the rate is linked to LIBOR,
£1,000 borrowed, making a monthly cost of determination of movement is out of the
C - The early repayment charge will last for
£6.52 x 120 = £782.40. Interest-only is 6% hands of the lender.
the fixed period only.
of £120,000 = £7,200 annually, or £600 per B - LIBOR mortgages follow the London
D - The fee is not usually refundable if the
month. £782.40 - £600 = £180 (rounded) Inter-Bank Offered Rate. There is usu-
application is subsequently cancelled. per month. ally no capping applied to either LIBOR
B - The capital repayment cost is £6.52 per or its matching rate.
9. Sally has started a discount mortgage. What
£1,000 borrowed, making a monthly cost of C - LIBOR is the benchmark for fixing the
are the implications of this arrangement?
£6.52 x 120 = £782.40. Interest-only is 6% rate, not the Bank of England base rate.
A - It will not protect her from rising interest
of £120,000 = £7,200 annually, or £600 per D - There is not a direct correlation between
rates.
month. £782.40 - £600 = £180 (rounded) LIBOR mortgages and standard variable
per month. mortgages.
B - She is certain not to pay more than the
C - The capital repayment cost is £6.52 per
Bank of England base rate during the
£1,000 borrowed, making a monthly cost of Q8 - Correct answer: D
discounted period.
£6.52 x 120 = £782.40. Interest-only is 6% A - The existence of a one year 'overhang'
C - She will receive a bonus payment on of £120,000 = £7,200 annually, or £600 per confirms that early repayment charges
completion of the discounted period.
month. £782.40 - £600 = £180 (rounded) apply for the first six years. This is one
D - The discount will be added to the capital
per month. year beyond the fixed rate period.
at the end of the discount period.
D - The capital repayment cost is £6.52 per B - The rate has been fixed for the first five
£1,000 borrowed, making a monthly cost of years. Movement in Bank of England
10. 10.What advantage does a typical capped
£6.52 x 120 = £782.40. Interest-only is 6% base rate in this period will not have any
of £120,000 = £7,200 annually, or £600 per effect on the applicable rate.
rate mortgage have over a typical fixed rate
month. £782.40 - £600 = £180 (rounded) C - The existence of a one year 'overhang'
mortgage?
per month. confirms that early repayment charges
A - It will allow the borrower to benefit from
apply for the first six years. This is one
interest rate reductions. Q4 - Correct answer: D year beyond the fixed rate period.
B - The rate will always be lower.
A - This is the 2007/2008 maximum contri- D - It is not usual for arrangement fees to
C - There are no arrangement fees.
bution to a cash ISA. be refunded if the application is subse-
D - There are no early repayment charges.
B - This is the 2007/2008 limit for a Maxi quently cancelled.
equity ISA if a Mini Cash Isa was also
taken. Q9 - Correct answer: A
C - £5,500 plus £1,500 is the 2007/2008 A- IA discounted rate offers a discount from
maximum contribution to a Maxi Isa. the lender's standard variable rate and
D - £5,700 plus £1,500 is the maximum therefore will increase/decrease in line
contribution to an ISA in 2008/2009. with that variable rate.
ANSWERS & JUSTIFICATIONS B- IA discount rate is linked to the standard
Q5 - Correct answer: B variable rate. It will not be restricted by
Q1 - Correct answer: C
A - £3,600 is the maximum which can be a ceiling, such as the Bank of England
A - In principle, the higher the interest rate
paid into a stakeholder/personal pen- base rate.
charged, the smaller the amount of capital
sion, irrespective of earnings. C- IThe discounted rate itself is the incen-
is repaid out of each instalment, unless the
B - Under current legislation, an amount tive. No additional bonus payments are
payment is adjusted.
equal to annual income can be paid into usually available.
B - In the early years, a greater amount of
a pension and tax relief can be obtained. D- IA discount rate is a true discount and is
capital is outstanding so the amount of
C - The contribution is limited to the lower not added back to the capital, unlike
interest is the bigger proportion.
of the annual allowance (£225,000 for deferred interest arrangements.
C - Over the years, the amount of capital out-
2007/8) and gross income.
standing reduces, which, in turn, reduces
D - £1,600,000 is the 2007/8 lifetime Q10 - Correct answer: A
the amount of interest required to service
allowance, which relates to the maxi- A- IA capped rate offers a ceiling when
it until, in the later years, the rate of capi-
mum which can be held in a pension interest rates rise, but no floor (collar)
tal repayment exceeds the interest amount
fund by an individual. when they fall, meaning that they can
in each payment.
take advantage of lower rates. Fixed
D - In the early years, the interest will exceed
Q6 - Correct answer: B rates will benefit if interest rates rise,
the capital payments until the amounts
A - Because the annual basis of calculating but do not fall if the variable rate
cross and, in the later years, the capital
interest payable only comes into play reduces below the fixed level.
payment proportion exceeds that of the
once a year, it responds poorly to capital B- IA capped rate can rise up to its ceiling
interest.
repayment and is more expensive than (cap). This may well be above an alter-
either daily or monthly. native fixed rate level.
Q2 - Correct answer: D
B - The daily basis of calculating interest C- IArrangement fees are commonly applied
A - Today, there is usually no significant dif-
payable on a loan immediately reflects to most, if not all, mortgage types.
ference between interest-only and capital
changes in outstanding capital. This D- IEarly repayment charges are usually
repayment interest rates.
means that the borrower will pay less imposed on capped rate deals.
B - The offering of monthly or daily rest is not
actual interest.
www.mortgageintroducer.com March 2009 Mortgage Introducer
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57