Banking · Mortgage Advice and Regulations
A borrower is seeking a home loan and specifically requests a product where the interest rate remains constant for the first five years and then transitions to a floating rate based on the prevailing benchmark. In the context of Mortgage Advice, which of the following best describes the risk management strategy the bank must employ to ensure the borrower is fully aware of the potential increase in monthly obligations after the initial period?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The bank should provide a verbal assurance that rates usually go down in the long run.
- 2The lender must issue a Key Fact Statement (KFS) detailing the reset frequency, the benchmark used, and a clear illustration of the impact on Equated Monthly Installments if the benchmark rises by a specific percentage.✓
- 3The bank should advise the borrower to ignore the floating period as it is too far in the future to predict.
- 4The mortgage advisor should suggest increasing the loan tenure to the maximum limit immediately to avoid any future payment shocks.
Correct answer
The lender must issue a Key Fact Statement (KFS) detailing the reset frequency, the benchmark used, and a clear illustration of the impact on Equated Monthly Installments if the benchmark rises by a specific percentage.
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