LIBF CeMAP (Certificate in Mortgage Advice and Practice) — All Questions

A retirement interest-only (RIO) mortgage differs from a lifetime mortgage in that the borrower:

• a.never has to make any payment at all during their lifetime, subject to the usual terms and conditions that apply
• b.pays the interest each month, with the capital repaid on death or a move into long-term care✓
• c.must repay the whole capital within the first five years
• d.receives a government subsidy towards the monthly interest

With a RIO mortgage the borrower services the interest each month, so the balance does not roll up, and the capital is repaid when the house is sold on death or a move into care. Affordability of the interest payments is assessed, unlike a rolled-up lifetime mortgage.

A bridging loan is most suitable where a borrower needs to:

• a.cover a short-term gap, such as buying a new property before selling the existing one✓
• b.repay a mortgage over the longest possible term to cut monthly cost, whatever the borrower's own individual circumstances happen to be
• c.permanently finance a main residence over a twenty-five-year term
• d.make a long-term investment into a personal pension arrangement

Bridging finance is short-term, higher-cost lending used to 'bridge' a timing gap, for example completing a purchase before a sale completes, or buying at auction. Because it is expensive, a clear and realistic exit (repayment) route is essential.

A self-build mortgage typically releases funds:

• a.directly to the estate agent handling the onward sale
• b.in stages, as each phase of the build is begun or completed✓
• c.as a single lump sum at the very start of the project
• d.only after the property is fully built and then sold on, as a standard part of the way the arrangement operates

Self-build mortgages release money in tranches tied to build stages (either in arrears, after each stage, or in advance of it), matching cash to the construction programme. Lending is often based on the plot and projected value, with valuations at each stage.

'Let-to-buy' describes an arrangement where a borrower:

• a.lets out their current home and buys a new property to live in✓
• b.rents a property from a landlord with an option to buy it later
• c.sells their home to a lender and then rents it back from them
• d.buys a property purely as an investment to let it out to tenants

In a let-to-buy the borrower switches their existing residential mortgage to a buy-to-let and lets the old home, while taking a new residential mortgage on the property they move to. It involves two mortgages and additional considerations such as the extra-property stamp duty surcharge.

The key difference between a tracker rate and a discounted rate is that a:

• a.tracker follows a named external benchmark, while a discount is a margin off the lender's own SVR✓
• b.discount follows the Bank of England Bank Rate but a tracker does not
• c.tracker is a fixed rate whereas a discounted rate is a variable rate
• d.tracker and a discount always produce an identical pay rate for the borrower, according to the relevant contract and policy documentation

A tracker is contractually tied to an external benchmark such as the Bank of England Bank Rate plus a margin, so it moves transparently with that rate. A discount is a reduction off the lender's discretionary SVR, so the lender's decisions on the SVR determine the pay rate.

The 'reversion rate' on a mortgage is the rate that:

• a.is charged on any overpayments the borrower makes
• b.the loan moves to once the initial deal period ends✓
• c.applies during the initial fixed or discounted period only
• d.the borrower pays only if they miss a monthly payment

The reversion rate is the follow-on rate, usually the SVR or a tracker linked to Bank Rate, that applies after the initial incentive period ends. It is generally higher than the initial rate, which is why the APRC and reversion rate matter when comparing deals.

An offset mortgage can be particularly useful for a self-employed borrower who:

• a.wants a rate that is guaranteed to be fixed for the whole term, according to the relevant contract and policy documentation
• b.is trying to avoid arranging any buildings insurance cover
• c.has no savings and no spare cash available at any point
• d.sets aside money for future tax bills that can offset the mortgage until the tax is due✓

A self-employed borrower can hold money earmarked for future tax or VAT in the offset account, reducing mortgage interest while the funds remain available to pay the bill when due. This makes otherwise idle cash work against the mortgage without locking it away.

The main advantage of a fixed-rate mortgage for a budget-conscious borrower is that the:

• a.mortgage can never carry any form of early repayment charge
• b.rate will always fall automatically if the Bank of England Bank Rate falls
• c.payment is certain during the fixed period, which aids budgeting✓
• d.capital is repaid noticeably faster than on a variable-rate deal

A fixed rate gives payment certainty for the fixed term, protecting the borrower from rate rises and helping budgeting. The trade-off is that they will not benefit if rates fall, and fixed deals usually carry ERCs during the fixed period.

A 'capped and collared' mortgage means the interest rate can:

• a.be fixed at a single rate for the entire mortgage term
• b.move only within a band, between a floor (the collar) and a ceiling (the cap)✓
• c.track the Bank of England Bank Rate exactly at all times, and this remains the position for the whole of the mortgage term
• d.never change at all once the mortgage has completed

With a cap and collar the variable rate is confined to a range: it cannot rise above the cap nor fall below the collar. The borrower gains protection from large rises but gives up the benefit of falls below the collar.

Many fixed-rate mortgages allow the borrower to overpay each year, without an early repayment charge, up to:

• a.a set limit, commonly around 10% of the outstanding balance✓
• b.the value of one single monthly payment in the whole year
• c.nothing at all, as overpayments are never permitted during a fix
• d.100% of the outstanding balance at any time in the year

Lenders commonly permit penalty-free overpayments up to about 10% of the balance a year during a fixed deal; overpaying reduces the balance and interest, especially where interest is calculated daily. Exceeding the allowance during the tie-in usually triggers an ERC.

Extending a repayment mortgage from a 25-year to a 35-year term will generally:

• a.reduce the monthly payment but increase the total interest paid over the term✓
• b.have no effect at all on either the monthly cost or the total cost
• c.increase the monthly payment because more capital is repaid each month, and this remains the position for the whole of the mortgage term
• d.reduce the total amount of interest paid over the life of the loan

A longer term spreads the capital over more payments, lowering the monthly cost, but because interest is charged for longer the total paid over the life of the loan rises. Advisers must balance affordability now against overall cost and the risk of the term running into retirement.

A non-refundable fee paid to reserve a particular mortgage product, often smaller than the arrangement fee, is usually called a:

• a.booking or reservation fee✓
• b.higher lending charge applied on high-LTV loans
• c.procuration fee paid by the lender to the broker
• d.redemption fee charged when the mortgage is repaid

A booking (reservation) fee secures the specific deal and is generally non-refundable even if the application does not proceed, whereas a larger arrangement (product) fee can often be added to the loan. Both feed into the true cost shown by the APRC.

A procuration fee is a payment made by the:

• a.borrower to HM Revenue and Customs on completion
• b.borrower to the surveyor for carrying out the valuation, and this remains the position for the whole of the mortgage term
• c.lender to the intermediary for introducing the mortgage business✓
• d.intermediary back to the borrower as an incentive

A procuration (or 'proc') fee is commission paid by the lender to a mortgage intermediary for arranging the loan. It must be disclosed to the customer under MCOB, and the advice must remain suitable regardless of any difference in proc fees between lenders.

The 'redemption' of a mortgage means:

• a.switching the mortgage from a repayment to an interest-only basis, as it is set out in the mortgage offer document
• b.repaying the outstanding balance in full so the charge over the property is released✓
• c.missing a single monthly payment and falling into arrears
• d.taking an agreed payment holiday for a short period

Redemption is full repayment of the mortgage, after which the lender releases its legal charge and the borrower owns the property free of that loan. A redemption statement shows the exact figure, including interest to the redemption date and any early repayment charge.

A formal mortgage offer issued to a borrower will typically:

• a.remove the need for any valuation of the property to be carried out, subject to the usual terms and conditions that apply
• b.be valid only for a limited period, after which it may need to be renewed✓
• c.guarantee the future market value of the property being purchased
• d.remain valid indefinitely and never expire once it is issued

Mortgage offers are valid for a set period (often three to six months); if completion is delayed beyond it, the offer may lapse and require reassessment, particularly if circumstances or rates have changed. The offer sets out the binding terms of the loan.

A lender applies a 'retention' to a mortgage advance where:

• a.the property is newly built and needs no further checks at all
• b.the borrower has an excellent credit history and a large deposit, provided the account is otherwise kept up to date
• c.essential works are needed, so part of the loan is withheld until they are completed✓
• d.the borrower has specifically asked the lender for a cashback

A retention holds back part of the advance (for example pending essential repairs identified in the valuation), releasing it only when the works are done and confirmed. It protects the lender's security by ensuring the property reaches an acceptable condition.

Which of the following could be an acceptable repayment strategy for an interest-only residential mortgage?

• a.an expectation of winning a prize or competition in the future
• b.simply hoping that house prices will rise enough over the term
• c.relying on being able to remortgage the loan again indefinitely, for the full duration of the mortgage agreement
• d.a planned downsizing sale supported by substantial equity, where the lender accepts it✓

Some lenders accept 'sale of the mortgaged property' (downsizing) as a repayment strategy where there is sufficient equity and it is realistic. Under MCOB 11 the strategy must be credible and evidenced; vague hopes of price rises are not acceptable.

A mortgage with a 'reserve' or drawdown facility allows the borrower to:

• a.extend the length of the lease on a leasehold property
• b.avoid paying any interest on the amount that has been drawn down, provided the account is otherwise kept up to date
• c.withdraw further pre-agreed funds up to a limit without a new application✓
• d.change to a different lender automatically at any time

A drawdown or reserve facility sets an agreed borrowing limit from which the borrower can take further funds as needed, paying interest only on what is drawn. It offers flexibility for staged spending, such as home improvements, without repeated applications.

A 'green' mortgage typically rewards borrowers who:

• a.purchase or improve an energy-efficient home, for example with a better rate or cashback✓
• b.buy the most expensive property that they can possibly afford
• c.take the longest possible mortgage term available from the lender, and this remains the position for the whole of the mortgage term
• d.choose not to arrange any buildings insurance on the property

Green mortgages incentivise energy efficiency, for instance offering preferential rates or cashback for homes with a high EPC rating or for making qualifying improvements. They reflect lenders' growing focus on sustainability and lower running costs for borrowers.

A borrower with a very high loan-to-value mortgage (for example 95%) is more exposed to:

• a.an automatic exemption from affordability assessment
• b.negative equity if property values fall✓
• c.an unconditional right to port the mortgage at any time
• d.a guaranteed lower interest rate than other borrowers

With little equity, even a small fall in property value can leave the borrower owing more than the home is worth, known as negative equity, making it hard to move or remortgage. Higher-LTV loans also generally carry higher interest rates to reflect the greater risk to the lender.