Any answers?

1 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

2What 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

3Ben has an unsecured loan of £3,800. 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

4Which 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

5 When Ivor consolidated his debts under a remortgage package, he was advised that the new arrangement has a drawdown 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

6 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

7 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

8 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

9 Gavin and Sarah are about to have their house repossessed by their lender under MCOB 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

10 A borrower in financial difficulty has received detailed advice from both the Consumer Credit Counselling Service and a financial adviser. In which case, if either, is a charge permitted to be made for this advice?

a)Both

b)Consumer Credit Counselling Service only

c)Financial adviser only

d)Neither

11 What event under a mortgage can give rise to subrogation rights?

a)Capitalisation of arrears as a result of financial difficulty

b)Consolidating an unsecured loan into a remortgage package

c)Payout under a policy secured by the payment of a higher lending charge

d)Transfer of equity to a third party Answers

1.a)Partial redemption can maintain the same monthly payments and reduce the residual term, or reduce the monthly payments and maintain the term

2.d)Following consolidation, it is likely the actual monthly interest paid on the personal loan proportion will reduce, as mortgages are normally cheaper than unsecured personal loans.

3.d)By switching the loan to a secured basis usually means the security is the house.

4.d)If a credit card debt is consolidated into a mortgage, it moves from unsecured lending to secured lending. If the borrower defaults, his house could be repossessed

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

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

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

8.a)The letter must contain a list of payments missed or partly paid

9.c)The lender is obliged to obtain the best price that might be reasonably paid

10.c)The Consumer Credit Counselling Service is a registered charity which provides a free service in order to help those in financial difficulty

11.c)The higher lending charge may be used to purchase a mortgage indemnity guarantee (MIG) policy. If a shortfall arises, the underwriter of the MIG can sue the borrower for the amount that has been paid to the lender under its powers of subrogation