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38
Training
9. Maureen is taking out a 100% mortgage as she
interest-only mortgages. Indeed, for guaranteed link.
has very little savings. She is attracted to a
some schemes for the elderly, they are Q7 - Correct answer: D
three-year cash back mortgage as she also
inappropriate. A - Tracker mortgages do not, of themselves,
wants to buy a new car. Which of the
Q3 - Correct answer: D offer a particularly discounted rate. By
following is true?
A - Neither capital repayment nor interest- definition, they vary in line with a selected
A - If she moves house within a specified
only mortgages have built-in life index.
period she may have to repay the cash
assurance. B - A tracker mortgage usually forwards the
back amount.
B - This is the essence of interest-only, the full amount to be borrowed at outset, not
B - The cash back amount is added to the
capital is not repaid until the end of the specifically on a drawdown basis.
capital outstanding.
mortgage term. It is the nature of the C - Tracker mortgages do not, of themselves,
C - The cash back is paid in instalments over
arrangement, not a disadvantage. offer a particularly low starting rate. By
the three years.
C - Because no capital is repaid within the definition, they vary in line with a selected
D - The cash back will be a fixed sum,
monthly payment, an interest-only index.
typically £200 to £500.
mortgage will have a lower payment D - Trackers directly follow the movement in
consisting of interest-only. an index or similar benchmark. Typically,
10. .Diane's lender has increased its standard
D - Because no repayment of capital is made these are base rate trackers following the
variable rate from 5.5% to 6.0% although the
within the payments, the interest-only Bank of England base rate. Essentially,
increase applied to her account is only 0.2%.
loan can offer no guarantee of repayment trackers are variable rate mortgages
This is because she has a:
at, or by, the end of the term. moving in line with their benchmark.
A - 5.7% capped rate mortgage.
Q4 - Correct answer: C Q8 - Correct answer: A
B - flexible mortgage.
A - The existence or otherwise of a life policy A - If interest rates fall, Sally's capped rate is
C - low start mortgage.
would not exclude the use of a personal likely to fall also, and could fall below
D - mortgage discounted at 0.3%.
pension tax-free lump sum being used to 4.75%, whilst Tom's is fixed at this level.
repay a mortgage. B - There is no certainty of how Sally's
ANSWERS & JUSTIFICATIONS
B - Both the employed and self-employed are payments will move at the end of the
entitled to start personal pensions. capped period. This will depend on
C - Under present legislation the earliest Paul prevailing interest rate conditions.
Q1 - Correct answer: D
can draw benefits from his personal C - There is no certainty as to how either
A - The monthly repayment is £7.30 x 75 =
pension is age 55. This is five years later payments will move at the end of the two
£547.50. £547.50 x 12 means that £6,570
than his 25 year mortgage will need to be year period. This will depend significantly
is paid in the first year. The interest is 6%
repaid. on prevailing interest rate conditions and
of £75,000 = £4,500. Capital repaid is
D - It is the actual contributions made over the lender's policy.
therefore £6,570 less £4,500 = £2,070.
time, and the investment performance of D -Whilst Tom's payment will not change,
B - The monthly repayment is £7.30 x 75 =
the personal pension, which will Sally's can, and could fall below Tom's.
£547.50. £547.50 x 12 means that £6,570
determine if sufficient funds could be Q9 - Correct answer: A
is paid in the first year. The interest is 6%
realised to repay a mortgage. A - It is usual, as a condition of a cash-back
of £75,000 = £4,500. Capital repaid is
Q5 - Correct answer: A mortgage, for some or all of the cash-back
therefore £6,570 less £4,500 = £2,070.
A - Unit-linked endowments usually offer a to be repaid if the loan is repaid within a
C - The monthly repayment is £7.30 x 75 =
broad number and types of fund in which given period.
£547.50. £547.50 x 12 means that £6,570
the planholder can invest. B - The cash-back is not added to the capital
is paid in the first year. The interest is 6%
B - Because unit-linked endowments, by their outstanding which is why the lender will
of £75,000 = £4,500. Capital repaid is
nature, depend on investment protect their position in the early years by
therefore £6,570 less £4,500 = £2,070.
performance they are not usually seeking a refund on early redemption.
D - The monthly repayment is £7.30 x 75 =
considered suitable for the risk averse C - Cash-backs are traditionally paid as a
£547.50. £547.50 x 12 means that £6,570
borrower. single payment 'up-front'.
is paid in the first year. The interest is 6%
C - Unit-linked plans buy into various D - The cash-back can be a fixed sum or a
of £75,000 = £4,500. Capital repaid is
investment funds. These move in price to percentage of the advance. It can, in
therefore £6,570 less £4,500 = £2,070.
reflect performance. They do not allocate certain cases, be a number of thousands
Q2 - Correct answer: A
reversionary bonuses. of pounds.
A - Because no capital is repaid in the
D - Whilst taken out for a term to match a Q10 - Correct answer: A
monthly instalments of an interest-only
mortgage, unit-linked plans are usually A - A capped mortgage usually follows the
mortgage the payments are lower than
flexible as to actual term. standard variable rate but will not exceed
with a capital repayment mortgage.
Q6 - Correct answer: A a stated ceiling, the cap. In this case, the
B - There is nothing inherent in an interest-
A - Variable rates are based on the lender's cap will have been set at 5.7%.
only mortgage which guarantees a
view of rates and are at their discretion, B - Flexible mortgages offer a range of extras
repayment of capital at the end of the
although to some extent they do tend to such as repayments without penalty or
mortgage term. This makes them
move in sympathy with changes in the taking payment holidays. They are not
generally inappropriate for the risk averse.
Bank of England rate. usually issued subject to any cap.
C - In recent years, the poor performance of
B - Variable means variable with no fixed C - Low start mortgages offer a deferred
investment vehicles used to repay
period applicable. capital or interest package in the early
interest-only loans and the recognition of
C - LIBOR linked mortgages are a different years.
the guarantees offered by capital
type of loan but, in terms of change, D - Had this been a discounted mortgage with
repayment mortgages, has lead to a
perform in a similar manner to variable a 0.3% discount, the rates would have
decrease in popularity.
rate loans. been 5.2%, rising to 5.7% if the standard
D - There is usually no requirement for a
D - Whilst there is a correlation with the Bank rate moved from 5.5% to 6.0%, ie a
repayment vehicle in conjunction with
of England base rate, there is no constant discount.
July/August 2009 Mortgage Introducer www.mortgageintroducer.com
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