Any answers? 27 July, 2009

1 Which of the following statements in respect of the early redemption of a mortgage is correct?

a) The borrower can redeem the loan early, but only if the mortgage deed allows.

b) The borrower has a legal right to redeem at any time, although an early repayment charge may be payable.

c) The lender may decline the request, if the mortgage deed contains a clause prohibiting early redemption.

d) The lender may give consent or decline the request, depending on the circumstances at the time.

 

2 Gwen has a £90,000 low-cost endowment mortgage, and wishes to make a capital reduction of £10,000. Which of the following best describes the action the lender might take?

a) Accept the payment and allow Gwen to reduce her monthly payment but keep the same mortgage term.

b) Accept the payment and insist that the mortgage term is reduced.

c) Refuse the payment, as Gwen has an interest-only mortgage.

d) Refuse the payment, unless the maturity date of the endowment policy is brought forward to coincide with the new mortgage redemption date.

 

3 What is likely to increase as a result of consolidating a personal car loan under a remortgage?

a) Amount of stamp duty.

b) Level of unsecured debt.

c) Risk of early redemption.

d) Total interest payable.

 

4 Ben has an unsecured loan of £3800. What change to this loan could increase the risk of his home being repossessed?

a) Paying it back in a lump sum rather than in regular payments.

b) Paying it back later than originally agreed.

c) Switching it from variable to fixed interest.

d) Switching it to secured status.

 

5 Which is the most significant risk taken by someone who consolidates credit card loans by adding them to the mortgage?

a) Bankruptcy in the event of default.

b) Initial monthly costs increasing.

c) Insolvency in the event of default.

d) Repossession in the event of default.

 

6 When Ivor consolidated his debts under a remortgage package, he was advised that the new arrangement has a draw-down facility. This specifically enables him to:

a) increase the amount borrowed.

b) miss payments if he suffers cashflow problems.

c) overpay on an occasional basis.

d) renegotiate the basis for charging interest.

 

7 Martin is in financial difficulty and is considering surrendering his mortgage-linked endowment and switching to a repayment mortgage. What potential advantage can he obtain by using the secondary market as opposed to surrendering his policy?

a) Avoiding the payment of a higher lending charge.

b) Enhancing the amount received for the policy.

c) Maintaining his required level of life cover.

d) Quicker settlement.

 

8 Which of the following types of mortgage arrangement is least likely to have its term extended as a way of dealing with arrears?

a) ISA mortgage.

b) Repayment mortgage.

c) Unit-linked endowment mortgage.

d) With-profits endowment mortgage.

 

9 Which of the following must be included in the warning letter a lender must send to a customer within 15 business days of becoming aware of an arrears situation?

a) A list of missed payments.

b) Procedures that the lender must follow to take possession.

c) The CML information sheet on arrears.

d) The total outstanding debt, including any redemption charges.

 

10 Gavin and Sarah are about to have their house repossessed by their lender. Under the Mortgage Conduct of Business Rules:

a) if there is a claim on a MIG policy as a result of the sale, the lender will be able to claim reimbursement from them at a later date for the amount paid under the policy.

b) the lender must market the property for sale within three months.

c) the lender must obtain the best price reasonably possible for the property.

d) where the sale proceeds exceed the outstanding debt, the lender can keep the surplus.

 

1b) It is the right of any borrower to redeem any loan at any time. The law does not permit lenders to obstruct this right, although they are at liberty to make a reasonable charge to cover their lost income.

2a) Partial redemption can usually be dealt with in two ways. Firstly, to maintain the same monthly payments and reduce the residual term or, alternatively, to reduce the monthly payments and maintain the term.

3d) Following consolidation, it is likely that the actual monthly interest paid on the personal loan proportion will reduce, as mortgages are normally cheaper than unsecured personal loans. However, the debt is likely to last a long time, thereby increasing the overall amount of interest paid.

4d) By switching the loan to a secured basis usually means the security is the house. Default in payment can lead to repossession.

5d) If a credit card debt is consolidated into a mortgage it moves from unsecured lending to secured lending. The security is the house. If the borrower defaults on the mortgage, his house could be repossessed under the terms of his mortgage agreement.

6a) A drawdown facility allows further tranches of loan to be drawdown at a later date, subject to pre-set criteria.

7b) The 'secondary market' relates to the sale of existing endowment policies through specialist intermediaries rather than surrendering to the lender. Such sales frequently offer a sale price higher than the surrender value.

8d) As a with-profits endowment is for a fixed term, extension of the term is a difficult option.

9a) Under MCOB 13 the lender must write to the borrower within 15 business days of becoming aware that the account is in arrears. The letter must contain a list of payments missed or partly paid.

10c) The lender is obliged to obtain the best price that might be reasonably paid, taking into account market conditions and the increasing debt.