R01 Mortgages, equity release and loans: free practice questions

1. Question 1 of 5

   Strictly speaking, what is a 'mortgage'?

   Option A: The monthly repayment the borrower makes on a home loanOption B: The loan advanced to the borrower to buy a propertyOption C: The security given to the lender in exchange for the loanOption D: The interest rate the lender charges on a property loan

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   The answer is C: The security given to the lender in exchange for the loan

   Technically the mortgage is the security (usually a charge over the property) given in exchange for the loan, although people commonly use the word for the loan itself.

   Why the other options are wrong

   A

   The monthly payment isn't the mortgage.

   B

   Everyday usage calls the loan a mortgage, but technically that's incorrect.

   D

   The interest rate is a term of the loan, not the mortgage itself.

2. Question 2 of 5

   A borrower wants their savings and salary to reduce the interest charged on their mortgage while staying accessible. Which mortgage type does this?

   Option A: DiscountOption B: TrackerOption C: OffsetOption D: Cap and collar

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   The answer is C: Offset

   An offset mortgage links a mortgage and current/savings account, charging interest on the net balance. Money kept in the account reduces the interest, yet stays available.

   Why the other options are wrong

   A

   A discount mortgage reduces the lender's standard rate for an initial period.

   B

   A tracker follows an index such as Bank Rate; it doesn't use savings to cut interest.

   D

   A cap and collar keeps the rate between upper and lower limits.

3. Question 3 of 5

   What are the two main types of equity release scheme?

   Option A: Offset mortgages and lifetime mortgagesOption B: Home reversion plans and sale and rent backOption C: Buy-to-let and home purchase plansOption D: Lifetime mortgages and home reversion plans

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   The answer is D: Lifetime mortgages and home reversion plans

   Equity release schemes are either lifetime mortgages (a loan secured on the home) or home reversion plans (selling all or part of the home).

   Why the other options are wrong

   A

   Offset mortgages are ordinary residential mortgages, not equity release.

   B

   Sale and rent back is a separate arrangement for people in financial difficulty.

   C

   Buy-to-let and home purchase plans aren't equity release.

4. Question 4 of 5

   Two clients start home reversion plans on similar homes, one aged 65 and one aged 80. Who is likely to receive the higher percentage of market value?

   Option A: Both receive the same percentage, set by the FCAOption B: The 80-year-old, as the older the client, the higher the percentageOption C: The 65-year-old, because they will pay rent for longerOption D: Neither; home reversion plans pay a fixed cash amount regardless of age

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   The answer is B: The 80-year-old, as the older the client, the higher the percentage

   The older the client at the start, the higher the percentage of the home's value they receive, because the provider is likely to wait less time to sell.

   Why the other options are wrong

   A

   The FCA doesn't set the percentage.

   C

   Younger clients get a lower percentage because the provider waits longer.

   D

   The amount depends on the property value and the client's age.

5. Question 5 of 5

   Which of these borrowers is most likely to have a consumer buy-to-let mortgage regulated by the FCA?

   Option A: A borrower who inherited a mortgaged house and needs to let itOption B: A landlord who already lets out three other propertiesOption C: A borrower buying a flat specifically to rent out as an investmentOption D: A company borrowing to build a rental portfolio

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   The answer is A: A borrower who inherited a mortgaged house and needs to let it

   Consumer buy-to-let covers 'accidental landlords', such as someone who inherits a mortgaged property or moves away without selling. Lending for a business of letting is business buy-to-let and isn't regulated.

   Why the other options are wrong

   B

   Already letting other properties suggests a business activity, so it's business buy-to-let.

   C

   Buying specifically to let is treated as business buy-to-let.

   D

   A company building a portfolio is clearly a business purpose.

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