CH10

Question 1

What factors are taken into account when lenders set variable rate?

Answer 1

• Competitors’ rates.
• Base rate as set by MPC
• Changes in rates they themselves are charged for raising funds from retail and wholesale sources.

Question 2

What is a discounted mortgage?

Answer 2

variable rate loan with the interest rate set at a specified percentage rate below the standard variable rate for a fixed initial period

Question 3

What is an offset mortgage?

Answer 3

mortgage account, savings account and current account with the one provider. Interest is calculated on a daily basis and any positive balances in the current and savings accounts are offset against the negative balance in the mortgage account.

Question 4

What is a current account mortgage (CAM)?

Answer 4

current account into which the borrower’s salary and savings are paid and from which the mortgage loan is debited.

Question 5

What is a deferred interest mortgage?

Answer 5

Allows payment of part of interest for agreed period of time; amount of capital owed increases

Question 6

What is a hybrid arrangement?

Answer 6

AKA mix and match; interest only and capital repaynment

Question 7

What is a foreign currency mortgage?

Answer 7

Mortgages on UK property set up and conducted in foreign currency (most commonly euros)

Question 8

What are the two main distinctions between lifetime mortgages and shared ownership?

Answer 8

Only available to older applicants
No prescribed final redemption date

Question 9

What is the most common and popular form of Islamic home finance?

Answer 9

Ijara; bank buys property and leases it back to client

Question 10

What is the Murabaha system

Answer 10

Banks buys property and then immediately sells it back to client at a higher price which is then paid off over term up to 15 years

Question 11

What must a customer do to qualify for a green mortgage?

Answer 11

purchasing/living in energy efficient home (EPC A or B)
Carrying out home improvements consistent with sustainable lifestyle

Question 12

In the event of default on a commercial mortgage, who does the lender take action against?

Answer 12

Company

Question 13

What is the APR calculated with reference to?

Answer 13

Total charge for credit (TCC)

Question 14

What is the Annual Rest method?

Answer 14

Interest calculated at start of each year and debited to account in advance
Does not reduce capital debt during the accounting year

Question 15

What is the Daily Rest method?

Answer 15

Interest calculated on daily basis (1/365) of annual interest due every day
Balance of mortgage can be reduced more quickly by making early repayment