Topic 12 Flashcards
Suitability (41 cards)
What must an adviser ensure when giving a personal mortgage recommendation?
That the recommendation is suitable for the client’s needs and circumstances, based on gathered customer information.
Why must a customer’s eligibility be considered during a mortgage assessment?
To ensure they meet the lender’s criteria, such as income level and loan-to-value (LTV) ratio.
What does a customer’s repayment preference help determine?
Whether they need a repayment mortgage, interest-only mortgage, or a combination.
How does a customer’s desire for stable payments affect product choice?
It may indicate a need for fixed or capped rates, but they must understand any early repayment restrictions.
What is important to consider if a customer wants low initial payments?
Whether a discount or low-start mortgage is appropriate.
What should be considered if the customer intends to make early repayments?
Whether the product allows this without penalties, and if penalties exist, whether the benefits outweigh them.
What other mortgage features might a customer want?
Options like overpayments or payment holidays.
Why is a customer’s credit record important in assessing suitability?
It affects whether the mortgage is appropriate for their credit history and if prime or sub-prime lending is suitable.
What must be considered regarding mortgage fees and charges?
Whether the customer prefers to pay them upfront or add them to the loan.
Can an adviser recommend an unsuitable product if it’s the closest fit available?
No. If no suitable product is available, no recommendation should be made.
What is the general principle regarding mortgage term suitability?
The mortgage should be over the shortest feasible term that suits the borrower’s needs and affordability.
What effect does a shorter mortgage term have on monthly payments?
It increases monthly payments but reduces total interest paid.
Why is the borrower’s retirement age relevant to mortgage term?
Repayments must remain affordable if the term extends into retirement.
How does mortgage term affect borrowing potential?
A longer term lowers monthly payments, increasing borrowing capacity.
What must be considered if early repayment is likely?
Avoid products with early repayment penalties.
Why is risk a relevant factor in mortgage advice?
Because risks like loss of home, interest rate changes, and investment underperformance affect mortgage outcomes.
What is negative equity?
When the mortgage debt exceeds the property’s market value.
How does repayment type affect risk?
Repayment mortgages reduce risk by ensuring the loan is repaid; interest-only carries repayment risk.
What is the risk of a fixed-rate mortgage?
That variable rates may fall below the fixed rate, causing the borrower to pay more.
What must customers understand about post-offer rate rises?
That variable rates may increase significantly after a fixed or discounted period ends.
What risk is associated with investment vehicles in interest-only mortgages?
They may underperform, leaving the borrower unable to repay the capital.
What are the two key areas of mortgage risk customers must consider?
The risk of not repaying the mortgage and the risk from interest-rate changes.
What characterises a ‘Cautious’ customer in terms of repayment risk?
They want minimal risk and insist on full repayment by term end; repayment mortgages only.
What characterises a ‘Balanced’ customer?
Willing to accept limited risk for potential rewards; may consider part repayment, part interest-only.
