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

Under a capital-and-interest (repayment) mortgage, the borrower's monthly payments:

• a.Vary directly with the stock market
• b.Are invested in a separate savings plan
• c.Cover both interest and a portion of the capital, so the balance is cleared by the end of the term✓
• d.Cover interest only, leaving the capital outstanding at the end of the term

A repayment (capital-and-interest) mortgage's payments include both interest and capital, so provided all payments are made the loan is fully repaid by the end of the term. An interest-only mortgage instead leaves the capital to be repaid separately.

An offset mortgage works by:

• a.Converting the loan into a foreign currency
• b.Guaranteeing a cashback each year
• c.Setting the borrower's linked savings balance against the mortgage balance to reduce the interest charged✓
• d.Fixing the interest rate for the whole term so that the borrower's monthly payment never changes for the entire mortgage term

An offset mortgage links the borrower's savings (and sometimes current-account) balances to the mortgage; interest is charged only on the net balance, reducing the interest cost while keeping the savings accessible. It does not fix the rate or pay cashback.

A tracker mortgage's interest rate:

• a.Moves in line with an external benchmark such as the Bank of England Bank Rate, at a set margin✓
• b.Never changes
• c.Is fixed for the life of the loan
• d.Is set at the lender's absolute discretion with no reference point

A tracker rate is a variable rate that follows a stated external benchmark, most commonly the Bank of England Bank Rate, plus a fixed margin, so the payment rises and falls with that benchmark. This differs from a lender's own standard variable rate, which the lender itself sets.

A 'discount' mortgage offers the borrower:

• a.A fixed rate for five years
• b.A set reduction off the lender's standard variable rate (SVR) for a period✓
• c.A rate that tracks the Bank of England Bank Rate
• d.An interest-free loan

A discount mortgage charges the lender's standard variable rate (SVR) less a set discount for an introductory period. Because it depends on the SVR, which the lender controls, the actual rate can move if the SVR changes.

A capped-rate mortgage protects the borrower by ensuring that the interest rate:

• a.Can fall but cannot rise above a stated ceiling during the capped period✓
• b.Always equals the Bank Rate
• c.Rises automatically each year
• d.Is fixed for the whole term and can never change under any market conditions

A capped rate is variable but cannot exceed a stated ceiling ('cap') during the capped period, giving the borrower protection against rises while still allowing the benefit of falls. A 'capped and collared' product also has a floor below which the rate cannot fall.