Free CeMAP 1 Quiz Test Unit 1 Topic 13

1 / 28

Which one of the following statements in respect of a unit-linked endowment policy is correct?

The value of the policy at any time is the number of units held multiplied by the offer price.

A pre-determined guaranteed benefit is payable on maturity of the policy.

The appropriate level of life cover is funded by encashing units on a monthly basis.

The guaranteed sum assured only is paid on death of the policyholder before the maturity date.

2 / 28

For which one of the following borrowers might a fixed rate mortgage be most suitable?

Tony who feels that lenders should never charge arrangement fees

Neil who believes interest rates will rise significantly in the near future

Bob who is convinced interest rates will fall sharply in the short term

Rachel who feels that interest rates will stay the same for the next few years

3 / 28

Which of the following is one way in which a repayment mortgage differs fundamentally from a full endowment mortgage?

The loan will be fully repaid at the end of the term

The higher the interest rate, the higher the monthly repayment to the lender

Interest is payable on the outstanding loan

Separate life cover is required

4 / 28

Which one of the following types of mortgage provides a genuine reduction in the normal variable rates of interest?

Discounted mortgage

Low-cost mortgage

Deferred interest mortgage

Low start mortgage

5 / 28

Compared to a full endowment, a traditional low cost endowment has a:

higher premium for a given guaranteed maturity value

higher premium for a given sum assured but more chance of bonuses

lower death benefit for a given premium but more savings

lower premium for a given death benefit but less guarantees on maturity

6 / 28

Which one of the following types of endowment will normally guarantee that the original mortgage loan will be repaid in full at the end of the term?

Non-profit

Qualifying unit-linked

Low cost

Low start unit-linked

7 / 28

An advantage of a variable rate mortgage is that:

first time buyers are able to budget accurately in the early years.

arrangement fees may be added to the loan.

borrowers are able to benefit from reductions in interest rates.

repayments to the lender are lower than any other product.

8 / 28

Why have endowment policies become less popular as a capital repayment vehicle for mortgages?

Because of the lack of premium waiver benefit A

Because of poor performance

Because of the lack of flexibility

Because of ‘front end loading’

9 / 28

With a pension mortgage, the loan is repaid using the:

Tax-free cash

Protected rights fund

Market value adjustment

Open market option

10 / 28

What happens to the capital outstanding during the duration of an interest only mortgage?

It remains the same

Most capital is repaid towards the beginning of the term

Most capital is repaid towards the end of the term

It reduces by an even amount each year

11 / 28

What is the main advantage of using a pension plan to support an interest only mortgage?

They often run over a longer term

They benefit from favourable tax concessions

They are assigned to the lender

They guarantee to repay the loan

12 / 28

Which one of the following statements, about repayment mortgages, is TRUE?

The longer the term, the higher the monthly repayment.

The shorter the term, the higher the total amount of interest paid.

The older the borrower, the higher the monthly repayment

The higher the interest rate, the higher the monthly repayment.

13 / 28

On a with-profits policy, a reversionary bonus is:

One that reverts to a minimum level in the event of a claim.

Declared each year and once declared and attached to the policy, it is guaranteed payable as long as premiums are maintained.

An irregular payment determined by the type of policy and the number of lives assured.

A payment made on maturity at the discretion of the assurance company.

14 / 28

Peter takes a loan from a building society to buy a new house. He is the:

mortgagee

mortgagor

assignee

vendor

15 / 28

What type of mortgage scheme would help someone on low income to become an owner occupier?

Buy to Let

Full endowment

Shared ownership

Home reversion

16 / 28

Which of the following is true in relation to re-mortgages and second mortgages?

A second mortgage is an additional loan from a new lender

A re-mortgage is an additional loan from a new lender

A second mortgage increases the loan from the same lender

A re-mortgage is a way for a lender to charge a higher interest rate

17 / 28

Which one of the following is a feature of a repayment mortgage?

The borrower will have to take out an investment policy to cover the shortfall at the end of the mortgage

The capital balance does not reduce over the term of the mortgage

Repayments will be fixed throughout the term of the mortgage

The capital and interest payment proportions change over the term of the mortgage

18 / 28

Which one of the following statements regarding a cap and collar mortgage is CORRECT?

They can only be used in conjunction with endowments

They are specifically aimed at clients with low loan to value ratios

They normally appeal to clients who believe rates are more likely to rise than fall

They are particularly appropriate when interest rates are falling

19 / 28

If Kim and Chris opt for a repayment mortgage, the most suitable way to ensure that the loan will be repaid if one of them dies is by:

taking out joint life decreasing-term assurance

making contributions to a critical illness policy

investing in an endowment assurance

contributing to a permanent health insurance policy

20 / 28

Which one of the following describes an advantage which a unit-linked policy has over a with profit policy, for mortgage repayment purposes?

The chance of a surplus at the end of the term

Tax relief on the premiums

A guaranteed minimum maturity value

The possibility of repaying the loan early A

21 / 28

Dick and Margaret have had their mortgage for two years and are concerned that interest rates have fallen but their monthly payment to the lender has stayed the same. Which type of mortgage do they have?

A capped rate

A base rate tracker

A fixed rate

A discount rate

22 / 28

If a low-cost endowment is used as a mortgage repayment vehicle, the mortgage is GUARANTEED to be repaid:

on death or maturity as long as premiums are paid.

as long as the policy is held for 25 years.

on death only.

providing interest rates do not exceed 12%.

23 / 28

Which one of the following is NOT an advantage of a flexible mortgage?

Unlimited further advances

The ability to borrow further money for lump sum expenditure

Over payments are allowed so enabling early repayments

The ability to have repayment holidays when clients’ budget is tight

24 / 28

What is the main advantage of a ‘capped’ interest rate option when taking out a mortgage?

There is a genuine discount off the normal variable mortgage interest rate

If interest rates go up the mortgage interest rate will be limited to a pre- set ceiling

Interest rates are linked to the Bank of England s base rate

The amount payable is fixed for the duration of the capped rate

25 / 28

Nick and Lynne are keen to take advantage of a better deal and remortgage with a new lender. However, their existing lender has informed them that if they move, they will have to pay an additional six months’ interest. The most likely reason for this is that

they have arrears on their mortgage account

they have a fixed rate mortgage

their lender is reclaiming the valuation fee outlay

they have a variable rate mortgage

26 / 28

Which is true of the capital repayments on a repayment mortgage?

It reduces by an even amount each year

It remains the same

Most capital is repaid towards the end of the term

Most capital is repaid towards the beginning of the term

27 / 28

How does a unit linked endowment plan running alongside an interest only mortgage work in practice?

The client pays interest only to the lender and the policy aims to repay the capital at the end of the term or on earlier death

The client pays interest and capital to the lender and the policy covers the outstanding loan in the event of death

The client makes no payment to the lender and the policy pays off the accrued interest and outstanding capital on death or maturity

The client makes interest and partial capital repayments to the lender and the policy clears any capital debt on death or maturity

28 / 28

Clive, at age 27, started a stakeholder pension plan, which he intended to use to repay the capital under his interest only mortgage. His stated occupation is office manager. After how many years minimum, will he be able to access his pension?

23 years

28 years

25 years

20 years