Mortgages Exercises

A Harry and Julia Newton earn basic pay of £4,800 and £30,500 a year respectively. Under Harry's terms of employment he is entitled to a bonus that varies in amount but which has averaged £600 a year over the last three years; £400 of this is guaranteed. A building society has indicated that on an earnings basis it would consider an application for a £16,750 mortgage on the joint incomes under normal conditions, but that with interest levels of 15% the total borrowing would be restricted to £13,675. Show the society's calculations of these amounts. Could the couple hope to get a top-up loan to bring the total borrowing to a higher level? Give reasons for the answer.

B What will be the single premium on the mortgage guarantee that will be required for a mortgage loan of £24,000 on a property valued at £27,000, where the rules of the society require independent security to be taken for the excess lending over 80% of valuation? Assume the premium rate to be 4%.

C What will be the net cost after tax relief to a basic-rate taxpayer of the first complete year's instalments on a 25-year repayment mortgage for £10,000, basing your answer on the specimen figures ).

D What will be the approximate initial costs involved in purchasing a property valued at the purchase price of £18,000, and obtaining a 90% mortgage on it from a building society? Base your answer on pages 102 to 104, and include the mortgage guarantee premium.

Mortgages Test Questions

1. What proportion of the purchase price of a £25,000 property might a borrower hope to borrow from a building society?

2. In what way does the size of your income set a limit to the amount you can borrow from a building society?

3. Is the building society mortgage interest fixed or variable?

4. What limitations are there on the tax relief available on the interest paid on home loans?

5. Distinguish between a repayment mortgage and an endowment-linked mortgage

6. In the case of a repayment mortgage, tax relief is high in the early years, falling... see: Mortgages Test Questions

Personal And Business Finance 2018

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