In a scenario where the property value is £180,000 and the mortgage loan sought is £140,000, with a 5% higher lending charge on the portion above 75% LTV, what is the charge?

In a scenario where the property value is £180,000 and the mortgage loan sought is £140,000, with a 5% higher lending charge on the portion above 75% LTV, what is the charge?

• A. £100
• B. £250
• C. £350
• D. £500

Answer: (B)

Higher lending charges are applied only to the portion of the loan that pushes the loan-to-value above 75%. Start by calculating the LTV: 140,000 divided by 180,000 equals about 77.8%, which is above 75%. Next determine the amount of the loan that sits above the 75% threshold. 75% of the property value is 0.75 × 180,000 = 135,000. The loan is 140,000, so the excess above the threshold is 140,000 − 135,000 = 5,000. The charge is 5% of that excess amount: 0.05 × 5,000 = 250. So the higher lending charge is £250. If the loan had been 75% or less, there would be no charge.

Higher lending charges are applied only to the portion of the loan that pushes the loan-to-value above 75%. Start by calculating the LTV: 140,000 divided by 180,000 equals about 77.8%, which is above 75%.

Next determine the amount of the loan that sits above the 75% threshold. 75% of the property value is 0.75 × 180,000 = 135,000. The loan is 140,000, so the excess above the threshold is 140,000 − 135,000 = 5,000.

The charge is 5% of that excess amount: 0.05 × 5,000 = 250.

So the higher lending charge is £250. If the loan had been 75% or less, there would be no charge.