Are banks obliged to follow the rba cash rate

Assignment

Certificate IV in Finance and Mortgage Broking (CIVMB_AS_v3A3)

Student identification (student to complete)

Please complete the fields shaded grey.

Student number

Assignment result (assessor to complete)

Result — first submission (Details for each activity are shown in the table below)

Parts that must be resubmitted:

Result — resubmission (if applicable)

Result summary (assessor to complete)

First submission

Resubmission (if required)

Section 1: Case study 1 — Clinton and Stephanie Clintons

Task 1 — Initial disclosures

Not yet demonstrated

Not yet demonstrated

Task 2 — Gathering and documenting client information

Not yet demonstrated

Not yet demonstrated

Task 3 — Assessing the clients’ situation

Not yet demonstrated

Not yet demonstrated

Task 4 — Using equity

Not yet demonstrated

Not yet demonstrated

Task 5 — Reasonable enquiries

Not yet demonstrated

Not yet demonstrated

Task 6 — Recommendations

Not yet demonstrated

Not yet demonstrated

Task 7 — Clinton and Stephanie’s professional network

Not yet demonstrated

Not yet demonstrated

Task 8 — Interest rates

Not yet demonstrated

Not yet demonstrated

Task 9 — Settlement

Not yet demonstrated

Not yet demonstrated

Section 2: Case study 2 — Tony and Lorraine Denton

Task 10 — Establishing level of financial knowledge

Not yet demonstrated

Not yet demonstrated

Task 11 — Responsible lending obligations

Not yet demonstrated

Not yet demonstrated

Task 12 — Self Employed special considerations

Not yet demonstrated

Not yet demonstrated

Task 13 — Advising on strategies

Not yet demonstrated

Not yet demonstrated

Task 14 — Impact of credit history

Not yet demonstrated

Not yet demonstrated

Task 15 — External dispute resolution

Not yet demonstrated

Not yet demonstrated

Task 16 — Effective access to files

Not yet demonstrated

Not yet demonstrated

Feedback (assessor to complete)

[insert assessor feedback]

Before you begin

Read everything in this document before you start your assignment for Certificate IV in Finance and Mortgage Broking (CIVMB_AS_v3A3).

About this document

This document includes the following parts:

• Part 1: Instructions for completing and submitting this assignment

• Section 1: Case study 1 — Clinton and Stephanie Clintons

– Task 1 — Initial disclosures

– Task 2 — Gathering and documenting client information

– Task 3 — Assessing the clients’ situation

– Task 4 — Using equity

– Task 5 — Reasonable enquiries

– Task 6 — Recommendations

– Task 7 — Clinton and Stephanie’s professional network

– Task 8 — Interest rates

– Task 9 — Settlement

• Section 2: Case study 2 — Tony and Lorraine Denton

– Task 10 — Establishing level of financial knowledge

– Task 11 — Responsible lending obligations

– Task 12 — Self Employed special considerations

– Task 13 — Advising on strategies

– Task 14 — Impact of credit history

– Task 15 — External dispute resolution

– Task 16 — Effective access to files

• Appendix 1: Client information collection tool/Fact Finder.

• Appendix 2: Serviceability calculator.

How to use the study plan

We recommend that you use the study plan for this subject; it will help you manage your time effectively and complete the assignment within your enrolment period. Your study plan is in the KapLearn Certificate IV in Finance and Mortgage Broking (CIVMBv3) subject room.

Part 1: Instructions for completing and submitting this assignment

Completing the assignment

Saving your work

Download this document to your desktop, type your answers in the spaces provided and save your work regularly.

• Use the template provided, as other formats will not be accepted for these assignments.

• Name your file as follows: Studentnumber_SubjectCode_Submissionnumber (e.g. 12345678_CIVMBv3A3_Submission1).

• Include your student ID on the first page of the assignment.

Before you submit your work, please do a spell check and proofread your work to ensure that everything is clear and unambiguous.

The assignment

This assignment is split into 16 Tasks, over 3 Sections. To finish this assignment, you must complete all 16 tasks.

The information and data needed to complete Sections 1 and 2 is presented in case studies at the beginning of those sections.

Word count

The word count shown with each question is indicative only. You will not be penalised for exceeding the suggested word count. Please do not include additional information which is outside the scope of the question.

Additional research

When completing the Client Information Collection Tool in Appendix 1, assumptions are permitted, although they must not be in conflict with the information provided in the Case Study.

You may also be required to source additional information from other organisations in the finance industry to find the right products or services to meet your client’s requirements or to calculate any service fees that may be applicable.

Submitting the assignment

You must submit the completed assignment in a compatible Microsoft Word document. You need to save and submit this entire document.

Do not delete/remove any sections of the document template.

Do not save your completed assignment as a PDF.

The assignment must be completed before submitting it to Kaplan Professional Education. Incomplete assignments will be returned to you unmarked.

The maximum file size is 5MB. Once you submit your assignment for marking you will be unable to make any further changes to it.

You are able to submit your assignment earlier than the deadline if you are confident you have completed all parts and have prepared a quality submission.

The assignment marking process

You have 26 weeks from the date of your enrolment in this subject to submit your completed assignment.

Should your assignment be deemed ‘not yet competent’ you will be given an additional four (4) weeks to resubmit your assignment.

Your assessor will mark your assignment and return it to you in the Certificate IV in Finance and Mortgage Broking (CIVMBv3) subject room in KapLearn under the ‘Assessment’ tab.

Make a reasonable attempt

You must demonstrate that you have made a reasonable attempt to answer all of the questions in your assignment. Failure to do so will mean that your assignment will not be accepted for marking; therefore you will not receive the benefit of feedback on your submission.

If you do not meet these requirements, you will be notified. You will then have until your submission deadline to submit your completed assignment.

How your assignment is graded

Assignment tasks are used to determine your ‘competence’ in demonstrating the required knowledge and/or skills for each subject. As a result, you will be graded as either competent or not yet competent.

Your assessor will follow the below process when marking your assignment:

• Assessing your responses to each question (and sub-parts if applicable) then determining whether you have demonstrated competence in each question.

• Determining if, on a holistic basis, your responses to the questions have demonstrated overall competence.

‘Not yet competent’ and resubmissions

Should sections of your assignment be marked as ‘not yet competent’ you will be given an additional opportunity to amend your responses so that you can demonstrate your competency to the required level.

You must address the assessor’s feedback in your amended responses. You only need to amend those sections where the assessor has determined you are ‘not yet competent’.

When making changes to your original submission, use a different text colour for your resubmission. This way, your assessor will be in a better position to gauge the quality and nature of your changes. Ensure you leave your first assessor’s comments in your assignment, so your second assessor can see the instructions that were originally provided for you. Do not change any comments made by a Kaplan assessor.

We are here to help

If you have any questions about this assignment you can post your query at the ‘Ask your Tutor’ forum in your subject room.

Before you submit your assignment

If you have any queries about the assignment questions, please use the ‘Ask your Tutor’ forum in your subject room. You can expect an answer from your Tutor within 24 hours of posting your question.

Remember, your online tutor cannot preview or check your assignment answers, or provide specific answer guidance. Please ensure that your questions are about clarification of the intent of an assignment question.

After your assignment has been assessed

If you have questions about your assessor’s feedback, please email: and include a copy of your assessed assignment. Never post your assignment answers or assessor comments in the ‘Ask Your Tutor’ forum.

Section 1: Case study 1 — Clinton and Stephanie Clintons

Background

Clinton and Stephanie Clintons live in Sydney with their two school-age children. They bought their home 15 years ago. With the rise in its value over time they have generated substantial equity and have decided to purchase an investment property. Recently they went to a real estate seminar where the presenter explained that it is possible with correct leverage to purchase more than one investment property. Consequently, they have decided to borrow 90% LVR on the investment property plus the LMI. The deposit, stamp duties and other costs will come from their ‘offset account’ attached to their home loan. They have requested not to use their current lender.

After conducting research over the last six months they have decided to purchase a new four-bedroom home in outer Brisbane for $450,000 with a rental income of $450.00 per week.

The real estate agent has recommended they contact you to arrange their finance. Their accountant has been providing some advice in relation to negative gearing benefits.

The following tables are a summary of the details obtained from the couple during the fact find interview. The details provided include a description of the property they wish to purchase, their financial and employment details and the loan features that they require.

The investment property

Address:

29 Pacific Drive, Ipswich, Queensland 4305

Purchase price:

$450,000

Description:

4-bedroom brick veneer home

Rent:

$450.00 per week

Agent details:

Rain and Hall

Phone:

07 9322 1113

Mobile:

0412 880 088

The borrower’s home address

Current address:

17 Moss Ave, East Hills, NSW 2213

Description:

5-bedroom full brick home

Value:

$850,000

Mortgage:

$190,000

Monthly repayment:

$1,020.00 per month

Home phone:

02 6051 2121

Clients’ view of funding requirements

Purchase price:

$450,000

Estimated costs:

$20,000

Total required:

$470,000

Loan:

$405,000 + LMI

Own contribution:

$65,000

Assets

Big Bank offset savings account (joint)

$180,000

Little Bank fixed term account (joint)

$10,000

Ford Falcon G6, 8 years old (Clinton)

$15,000

Holden Barina, 10 years old (Stephanie)

$5,000

Superannuation — MPA Insurance (Clinton)

$82,000

Superannuation — CLM Insurance (Stephanie)

$54,000

Household effects (insured value)

$80,000

Liabilities

Big Bank standard home loan (Joint) (P&I repayment, variable, no fees)

5.0%

$190,000 (repayments $1,020 p.m.)

Big Bank Visa card (Clinton)

18.5%

$800 (limit $5,000) (clears monthly)

Little Bank Visa card (Stephanie)

12.9%

$1,200 (limit $3,000) (pays $500 per month)

All debts have been repaid according to arrangements. In relation to the credit card debt, the minimum monthly commitment for servicing purposes should be calculated at 3% of the credit limit.

Income/employment

Clinton (date of birth 24/5/84)

Position:

Project Manager (full time)

Employer:

ACM Construction

10 Wide Rd, Ryde, NSW

Phone:

02 7061 2111

Income (gross):

$85,000 p.a., gross monthly income of $7,083, net monthly income of $5,476

Employer contact:

Kelly Williams, HR Manager

Length of service:

16 years

Driver’s licence:

8869KL

Email:

clinta@acm.com.au

Stephanie (date of birth 8/10/87)

Position:

Accounts Assistant (full time)

Employer:

Pretty Clothing Pty Ltd

80 High Street, Penrith, NSW

Phone:

02 9940 3677

Income (gross):

$74,000 p.a., gross monthly income of $6,166, net monthly income of $4,837

Employer contact:

Joan Collins, HR Manager

Length of service:

7 years

Driver’s licence:

2897HT

Email:

Jennya@pc.com.au

Interest income

Approximately $30 per month from the $10,000 term deposit, interest of 3.5% p.a.

Expenditure

Monthly expenditure for living expenses — $3,200.

Solicitor’s details

Jackson & Williams 28 West Street, Yagoona, NSW

Phone: 02 9283 1365 Fax: 02 9283 1802

Note: The solicitor has quoted $1,500 to cover estimates costs.

Proposed loan details

• application fee — $600.00 (includes valuation)

• 30-year term

• principal and interest

• residential investment loan

• standard variable interest rate of 5.68% (comparison 5.82%), special offer rate of 4.78% (5.16% comparison) ( Note: Clinton & Stephanie will qualify for this special loan offer.)

• proposed settlement date — 6 weeks’ time

• ability to make additional payments from time to time without penalty

• fortnightly repayment option

• redraw facility

• internet banking.

Assignment tasks (student to complete)

Task 1 — Initial disclosures

Following a personal introduction and before you begin gathering information about the clients’ existing financial situation or needs, there are certain disclosures you are required to make as a finance broker. These disclosures include the way you are remunerated and the range and limitation of your services.

1. There are four (4) documents listed in ASIC Information sheet INFO 146 ‘Responsible lending disclosure obligations – Overview for credit licensees and representatives’ that must be provided to customers. Refer to this Information sheet and the information contained in your topic notes to answer part (a) and (b) below.

(a) Identify which of these four (4) documents you must provide your client before you commence providing credit assistance and explain the main disclosures relevant to that document. (40 words)

Student response to Task 1: Question 1(a)

Answer here

Before collating information from the new clients, following three disclosures should be made:

· how intermediary is to be paid

· who the intermediary represents

· who the intermediary pays for referrals

The MFAA’s code of Practice requires that all the members to disclose the commissions regardless whether the commission is to be paid by borrower or the lender. Irrespective of membership of the MFAA and the need to comply with their Code of Practice, certain disclosures are mandatory for loans regulated by the NCC.

The Corporations Act prohibits secret commissions between agents and principals. Both the NNC and the Corporations Act include provisions that commissions must be disclosed in relations to commercial transactions.

The Consumer Credit Administration (Finance Broker) Regulations 2004(NSW) requires loan writers to, as well as disclosing monetary commissions, aslo disclose any interests, relationships and alternative forms of commissions that may influence their recommendation. It also includes soft dollar commissions such as, tickets to sporting event and holiday packages.

Payments by intermediaries to third parties (such as real estate agents, accountants, solicitors, valuers and other associates of the borrower) for referring potential clients are widespread in the mortgage industry. Both the CCLC and the steering committee advising the NSW government on credit reform have strongly recommended the inclusion of provisions requiring intermediaries to fully disclose any fees or commissions paid to third parties referring business

(b) Identify which of these four documents you will provide the client should you intend to charge a broker fee and explain what is required for it to be valid. (40 words)

Student response to Task 1: Question 1(b)

Answer here

For disclosure of commissions, the relevant documents are: (a) credit guide—given by credit assistance providers, credit providers and the credit representative of those licensees; (b) credit proposal disclosure document (proposal document)—given by credit assistance providers; and (c) pre-contractual disclosure statement—given by credit providers.

Assessor feedback:

Resubmission required?

No

Task 2 — Gathering and documenting client information

Complete the Client Information Collection Tool (located at the end of the assignment in Appendix 1) using the information provided in Case Study 1.

Note: Any assumptions you make should be listed and should not be in conflict with the case study information already provided.

Assessor feedback:

Resubmission required?

No

Task 3 — Assessing the clients’ situation

1. Using the Excel or Online version of the Genworth Serviceability Calculator, calculate the Genworth NDI for the borrowers. This will require you to enter all the data, including their future rental income. .

Once you have completed the calculations, copy the data into the Serviceability Calculator (located at the end of this assignment in Appendix 2).

Do not upload the Excel spreadsheet as a separate file.

Applicant 1

Applicant 2

Other names

CLINTON

STEPHANIE

Contact details

Address

10 Wide Rd, Ryde, NSW

80 High Street, Penrith, NSW

Phone

07 9322 1113

02 9940 3677

Mobile

0412 880 088

Email

Clintonw@acme.com.au

swilson@phonesrus.com.au

Employment

HR MANAGER

HR MANAGER

How long?

16 YRS

7 YRS

Previous employer

How long?

PAYG

YES

YES

Self-employed

Gross income ( p.a.)

$85000

$74000

Number of dependants

0 ?

0 ?

Motor vehicles

Ford Falcon G6,

$15,000

Holden Barina,

$5,000

Loan purpose

NEW FOUR-BEDROOM HOME

Purchase price/Valuation

$450000

Deposit

65000

Loan amount

405000 (LMI?) loan amount incorrect no LMI added

Borrowing capacity

650000-750000 (?) where this figure came from ?

Assets and liabilities

Assets

Liabilities

Details

Market value

Details

Monthly payments

Amount owing

Property at:

$190,000

Mortgage with:

$1200

-

Property at:

Credit Card

?

Property at:

Credit Card

?

Cash at bank

$180,000

$10,000

Car leasing ?

Other cash

$1600

2.

$3600

Deposit paid on property

Overdraft

Motor vehicles:

Ford Falcon G6,

Holden Barina,

$15000

$10000

Other loans:

1.

2.

Personal effects

Credit card limit: $5000

18.5%

$800

Credit card limit: $3000

12.9%

$1,200

Shares and investments

Other:

Superannuation

Superannuation — MPA Insurance (Clinton)

$82,000

Superannuation — CLM Insurance (Stephanie)

$54,000

Total assets

$237600

Total liabilities

$4400

Surplus/deficiency:

Needs analysis

1

Name of your current lender?

CAPITAL BANK

2

What type of loan do you have?

PERSONAL LOAN (CLINTON)

3

Why did you choose this particular loan and lender?

3

What is the interest rate?

4

What are your payments?

Amount

$180

5

Frequency

MONTHLY

6

Do you know the fees and charges?

NO

7

What is your proposed purpose for the loan proceeds?

BUY HOME

8

Branch access available

YES

9

Internet banking available

YES

10

Phone banking available

YES

11

Lenders not to be considered

TOO BUSY TO FIND LENDERS

12

Type of loan sought

30-YEAR TERM HOME LOAN

13

Interest rate

5.68%

14

Payment frequency

FORTNIGHTLY

15

Redraw

YES

16

Offset

YES

17

Salary crediting

FUND ACCESS VIA CARD

18

Low fees and charges

YES

Notes

CLINTON AND STEPHANIE ARE PLANNING TO BUY THEIR SECOND HOME.

THEY HAVE FOUND THE PROPERTY THEY WANT BUT HAVEN’T PAID DEPOSIT.

CLIENTS ARE BOTH BUSY AND HAVE LIMITED KNOWLEDGE OF THE LAON PRODUCTS AVAILABLE.

REAL ESTATE AGENT REFFERED.

PROPOSED SETTLEMENT DATE 6 WEEKS TIME

VARIABLE RATE @5.68%

Anticipated fees and charges

Anticipated purchase price

$ 430000

(PURCHASE PLUS RENOVATION)

Deposit

$ 60000

Loan amount

$ 370000

LVR

90.24%

Purchase costs

Stamp duty on transfer

Mortgage

Transfer

$ 13940

$ 107

$ 214

Solicitor/conveyancer

$ 1500

Rates and land taxes

$ 500

Pest inspection

$ 500

Borrowing costs

Application/establishment fee

$ 600

Valuation fee

$

Security admin fee

$

Mortgage stamp duty

$

LMI

$ 9842

Registration of mortgage

$ 150

Release of mortgage

$

Search fees

$

Other

$

Total

$ 457353

Loan interview diary

Name(s) of client(s) present at interview

CLINTON & STEPHANIE

Date of interview:

Location of interview

10 WIDE RD, RYDE, NSW

Indicate all clients who were interviewed in person

CLINTON & STEPHANIE

Do all of the clients appear to clearly understand English? YES

If not, have the services of an interpreter been recommended?

Do all of the clients clearly benefit from taking out this loan? YES

If not, what inquiries have been made to ascertain the level of benefit to each party of the loan?

Are any clients acting as though they are under duress or other disability? NO

Are any clients acting as though they are unsure of anything about the loan? NO

Are any of the clients acting as though they are unable to comprehend their obligations? NO

Are there any guarantors? NO

If yes is answered to any of the above questions, have the clients been advised to seek the services of a lawyer or financial adviser?

YES.

Solicitor’s details

Jones and Co 22 High Street, City East, 2997

Phone: 02 8281 1382 Fax: 02 8290 1800

Provide details of other pertinent information obtained during the loan interview which may be of interest or any unusual circumstances you may wish to record

Clients both work and have little time to do research.

They also mentioned that they ae limited knowledge of loan products available and might have difficulty in evaluating the options.

Referred by Stephanie’s father.

The clients are renting and have found the property they like. The settlement is in 6 weeks time.

Assessor feedback:

Resubmission required?

No

2. Based on the information provided in the case study and using the tools available to you (e.g. loan calculators, including those available on lenders’ websites), provide an assessment of the clients’ borrowing ability. Consider and comment on the following issues:

(a) the maximum loan using the Genworth calculator

(b) deposit requirements for the loan required

(c) combined net monthly income, less cost of living expense as specified by the borrower

(d) do they require Lenders Mortgage Insurance (LMI) and if so, how much will it cost? Refer to Genworth LMI estimator for this figure

(e) any other issues that may impact, now or in the future, on the clients’ ability to meet their obligations, including any possible risks.

Provide data to support your comments and conclusions. (No word count requirement for questions (a) to (d)). Question (e) (100 words)

Student response to Task 3: Question 2(a)

Answer here

Depending upon the information provided by client, the client can secure a loan with a number of lenders. They can borrow $600k - $750k (Where this figure came from?) depending on various assumptions made by the lenders. Rate of 5.68% (Incorrect interest rate used couple is qualified for 4.68% as per above information ?)is used to calculate the borrowing capacity. $2000 (Living expenses incorrect its $3200 as per above information ?) provision has been made of personal expenses per month expenses

Various quotes are as follows:

· $607000 with Bankwest

· $713000 with NAB Homeside

· $743000 with Commonwealth Bank

· Various lenders requires a 20% deposit plus the stamp duty and other incidentals. NAB homeside has a policy where it allows application with 5% deposit along with lenders mortgage insurance.

Student response to Task 3: Question 2(b)

Answer here

In this case, Clinton and Stephanie is planning to deposit $60000 65K and the property price is $450000. Therefore, they need to get lender mortgage insurance due to the higher LVR (more than 80%). ? 87%According to Genworth online LMI calculator, it is estimated as $9842 $5792

Student response to Task 3: Question 2(c)

Answer here

Depending upon the information provided by client, the client can secure a loan with a number of lenders. They can borrow $600k - $750k ( upto $ 1,000,035.00) depending on various assumptions made by the lenders. Rate of 5.68% is used to calculate 4.68% (eligible interest rate for couple ) the borrowing capacity.

$2000 $3200 provision has been made of personal expenses per month expenses

Student response to Task 3: Question 2(d)

Answer here

Notes: Clinton and Stephanie is planning to deposit $60000 and the property price is $450000. Therefore, they need to get lender mortgage insurance due to the higher LVR (more than 80%). According to Genworth online LMI calculator, it is estimated as $9842 ?

Student response to Task 3: Question 2(e)

Answer here

Potential risk for the client could be not budgeting their expenses and may fall behind payments. Also there may be a possibility of rate hike which can adversely affect client repayments. But Clinton and stephanie have summarised their expenses and can afford loan up to a further 200 bases point increase. ?

There are many inherent risks like drop in property prices, increase in rates and taxes, borrower being redundant which have been taken in consideration by the client before applying for loan.

Assessor feedback:

Resubmission required?

No

Task 4 — Using equity

1. Although Clinton and Stephanie have chosen to borrow 90% LVR on the investment property plus the LMI costs, what other option could you present that would avoid the cost of LMI? (100 words)

Student response to Task 4: Question 1

Answer here

To avoid the LMI they can use a family guarantor who has the ability of providing additional equity against their property and this may provide them with 100% ifthe new property’s value since the family member will offer 20% if the risk leaving the bank with the remaining 80%.
Their guarantor would ideally be the parent or grand parents as well as brother or sister, step relationships can be accepted as well. The family member must have sufficient equity and any source of income even retirement funds are acceptable.

Assessor feedback:

Resubmission required?

No

2. Explain how it could be possible for Clinton and Stephanie to borrow 100% of the purchase price ($450,000) and obtain a tax benefit for the interest charged. (100 words)

Student response to Task 4: Question 2

Answer here

They can use their first home as equity since lenders will allow the to refinance and gear their property to 90% ? with the mortgage insurance capitalized and base loan.

This is because the value of property has sky rocketed and this has increased their capital value. Thus, by tapping into this growth Stephanie and Clinton will be able to buy another property with full tax benefit by borrowing at 100% of the purchase price.

Assessor feedback:

Resubmission required?

No

Task 5 — Reasonable enquiries

In the course of gathering information about the couple, you are required under the National Consumer Credit Protection Act 2009 to make all ‘reasonable’ enquiries to determine a borrower’s objectives, requirements and financial situation.

Identify at least six (6) ‘reasonable’ enquiries that you would make with the clients in the case study and explain why these enquiries are important in terms of NCCP compliance. (200 words)

Student response to Task 5

Answer here

1. The reasonable inquires, such as the amount of credit required, time frame for repayment, the purpose and whether the desired product has appropriate features ad flexibility can be made to determine Clinton and Stephanie’s objectives.

2. Clinton and Stephanie have provided their employment details and history of residence. I will ask Clinton’s loan bank statement of his personal loan. This is to determine the likelihood that they will meet repayment obligations over the term of the loan.

3. I will consider clients main source of income including their salaries and interest income by checking their pay slips and tax returns to confirm that the clients have the capacity to repay the loan.

4. The borrower’s appreciation of the risks associated with the features of a particular credit product need to be noticed. I also will confirm with Clinton and Stephanie that the deposit to calculate LVR.

5. Valuations will be required for the property that the clients want to purchase. This will also be used by bank to assess their level of risk in proving loan to the clients.

6. Additional loan protection – Lender’s mortgage insurance will be required.

Assessor feedback:

Resubmission required?

No

Task 6 — Recommendations

Note: Incorrect or uninformed advice can lead to significant financial detriment for your client and lead to possible complaints against you for misleading or deceptive and misleading conduct. Therefore, all three (3) questions of this task are ‘critical’ and you must demonstrate the required knowledge in each to be deemed competent.

1. Based on the information presented in the case study, prepare a written proposal (letter or email) outlining your proposal to clients. (750 words)

The style and language used in the proposal should be appropriate to the case study client’s level of understanding. It should be clear and concise and written in language that is easy to understand, while still remaining professional in its presentation.

You may base your response to this part of the assignment either on your knowledge of the products currently offered by your own organisation or on the products offered by a lender you have researched.

In your proposal, you should include:

• a summary of your understanding of the clients’ needs (this could be an outline summary of their proposed loan structure)

• a summary of their current financial position (use information from the ‘funds to complete’ template completed in Appendix 1)

• the product options you have considered that meet their needs (research two lenders and detail their loan features; you can use the internet or if working in industry, internal software)

• the option you recommend and the reasons for the recommendation — explain how the recommended product meets the clients’ needs (refer to the case study and explain why you are recommending this lender)

• disclosures applicable to the situation (a summary of likely applicable disclosures is adequate). Include disclosures in the Credit Guide and any conflicts of interest.

Note: List any assumptions you have made about the clients and their situation in order to complete this part of the assignment. There are no rules regarding the format. Please use the format that best suits you. Should you require it, an example of a written proposal format has been provided in topic 3.3. Note that the credit guide in your resources is not a ‘written proposal’.

Student response to Task 6: Question 1

Answer here

Written Proposal

Client’s needs

Clinton and Stephanie who have been married for five years are looking to buy their Second home. They have been looking at properties for the last month and found one which is cost $450000. The renovation of the kitchen and bathroom and other costs could be $20000 extra.

Clients are looking to take a variable interest loan with following requirements:

• 30-year term

• Premium Option home loan

• standard variable interest rate @ 5.68%

• proposed settlement date — 6 weeks time

• ability to make additional payments from time to time without penalty

· fortnightly repayment option

· redraw facility

· funds access via cardoffset facility

Current financial situation

Clinton and Stephanie are working in their jobs for more than 3 years and have $72000 ( in saving, out of which they want to use $60000 65K towards their home deposit and $12000 remaining in their saving account. Clinton, the husband, has a personal loan of $3600 ? and a Visa card with $2000 (5000)limit. Stephanie has a Visa card with $3000 limit.

Total Assets Total liabilities

Car $15000 Loan $190,000

Car $10000 ($5000) Credit card balance$2000 ($8000)

Superannuation $136000(Both)

Cash at bank $190000

Net Financial Position $159000 ?

As Clinton and Stephanie have no other liability, they can easily secure home loan to buy their second home. Assuming that Clinton estimated they spend around $2500 towards their living costs and insurances. After paying for mortgage and other costs, they will have $2560 left per month. ($4900 + $2900 - $2500(monthly expense) - $2740(monthly repayment) = $2560 ) They can save the money into offset account or to pay off the loan quickly. ? please explain where this comes from

As Clients are existing customers with Capital bank, I will suggest they apply for the 30-year term Premium option home loan with standard variable interest rate @5.68% with Capital bank . I believe capital bank will provide debit card attached to offset account. Capital bank allows application with less than 20% deposits along with LMI. Bank fees are also less than other banks. Capital bank has several branches throughout Australia and clients can access accounts via phone or online. Capital bank has several branches throughout Australia and clients can access accounts via phone or online.

If Clinton and Stephanie proceed with the loan, our organisation will get 1.2% (its max 0.71%) upfront fees and will also receive a trail. Disclosures will also include the external and internal dispute resolution process.

Assumptions

· Living costs and insurances are $2000 per month

· all information used related to Capital bank is based National Australia bank information

Proposal Disclosure Document

Client’s needs

Clinton and Stephanie who have been married for five years (15years) are looking to buy their second home. They have been looking at properties for the last 6 months and found one which is $450000. The renovation of the kitchen and bathroom and other costs could be $20000 extra. The other main costs are stamp duty $13940 and LMI $9842.

Clients are looking to take a variable interest loan with following requirements:

• 30-year term

• Premium Option home loan

• standard variable interest rate @ 5.68%

• proposed settlement date — 6 weeks time

• ability to make additional payments from time to time without penalty

• fortnightly repayment option

• redraw facility

• funds access via card

• offset facility

Current financial situation

Clinton and Stephanie are working in their jobs for more than 3 years and have $72000 in saving, out of which they want to use $60000 towards their home deposit and $12000 remaining in their saving account. Clinton, the husband, has a personal loan of $3600 and a Visa card with $2000 limit. Stephanie has a Visa card with $3000 limit.

Total Assets Total liabilities

Car $15000 Loan $190,000

Car $10000 Credit card balance $2000

Superannuation $136000(Both)

Cash at bank $190000

Net Financial Position $159000

Proposed finance

Lender/lessor: Capital Bank

Finance amount: $398,000

Interest rate: 5.68%

Term: 30 year

Repayments: $ 1365 fortnightly

Other features: 6 weeks settlement, ability to make additional payments from time to time without penalty, fortnightly repayment option, redraw facility, funds access via card, offset facility

Notes: Clinton and Stephanie is planning to deposit $60000 and the property price is $450000. Therefore, they need to get lender mortgage insurance due to the higher LVR (more than 80%). According to Genworth online LMI calculator, it is estimated as $9842.

If Clinton and Stephanie only contribute $60,000, they will not have sufficient money to settle the property with $370,000 loan.

The total estimated cost including Stamp duty and LMI is $457,353, less $60000 contribution is equal to $397,353.

The estimated loan amount is $398,000. Fortnightly repayment (principal & interest) of $1365 depending upon 5.68% interest on loan of $398,000 is quite convenient in current situation.

Assuming that Clinton estimated they spend around $2000 towards their living costs and insurances. After paying for mortgage and other costs, they will have $2842 left per month.

($4900 + $2900 - $2000(monthly expense) - $2958(monthly repayment) = $2842).

Fees payable by you to us

Nil

Reasonable estimate of commission

I will receive the commission from capital bank for assisting you to obtain finance.

0.4% of the amount of credit limit shortly after the finance is provided. We estimate this to be $1592.

0.15% per annum of your amount owing from time to time payable monthly. We estimate the largest monthly payment to be $4.44.

We may receive additional commissions from volume bonuses which are referred to in our credit guide. The amount of those additional commissions cannot be determined at the date of this document.

Estimate of total fees and charges payable to the financier in relation to applying for the finance

Establishment fee: $600

Valuation fee: $0

Total $600

These figures are estimates only and the final figures will be shown in your credit contract or lease. Some or all of these fees may be paid from the finance proceeds.

These fees are payable only once.

We are not aware of any other fees or charges payable to anyone else in relation to the application for finance, but the financier may impose some additional requirements.

Assessor feedback:

Resubmission required?

No

2. (a) Describe the home buyer assistance scheme benefits and stamp duty concessions that are available in your State or Territory, who would be eligible and what would be their benefit?

Note: Please identify what State or Territory you are from in your answer.(150 words).

Student response to Task 6: Question 2(a)

Answer here

The following home buyer assistance schemes and stamp duty concessions are available in NSW.

1. The second home - New Home scheme commenced from 1 January 2012 and provides eligible purchasers with exemptions from transfer duty on new homes valued up to $550,000 and concessions for new homes valued between $550,000 and $650,000.

Eligible purchaser buying a vacant block of residential land to build their home will pay no duty on vacant land valued up to $350,000, and will receive (NO Stam Duty) concessions for vacant land valued between $350,000 and $450, 000. (concession in stamp duty only)

These rates apply from 1 July 2012.

2. The seconf home Owner Grant (New Homes) scheme (the Scheme) was established to assist eligible second home owners to purchase a new home or build their home by offering a $15,000 grant.

The Scheme applies to new homes only and will reduce to $10,000 on 1 January 2016.

Clinton and Stephanie are not eligible for stamp duty concessions and the second home owner grant because they are buying an established home.

Assessor feedback:

Resubmission required?

No

2. (b) Provide a summary of all additional costs and fees, that the couple should be made aware of. (100 words)

Note: When considering your response, you can refer to your completed Appendix 1 which lists fees expected and charges. Apart from known costs, you can estimate other costs (i.e. pest inspection, rate etc.).

Student response to Task 6: Question 2(b)

Answer here

Other costs and charges

· Establishment fees

· Account keeping fees

· Late payment fees

· Guarantee fees(where applicable)

· Settlement fees

· Early repayment fees

· Solicitor fees

· Stamp duty (where applicable)

· Lender mortgage insurance (where applicable)

Assessor feedback:

Resubmission required?

No

Task 7 — Clinton and Stephanie’s professional network

1. Name three (3) parties Clinton and Stephanie may wish you, as their broker, to keep informed of the progress of their finance application who are not directly involved in the loan processing? (100 words)

Student response to Task 7: Question 1

Answer here

Some of the parties Clinton and Stephanie may wish to keep informed include

· The Real estate agent

· Real estate agents are among the most crucial people anyon interacts with when buying property, not unless a private vendor is involved. They mainly act as the sellers by communicating to the buyer about the features of the property as well as negotiate prices.

· The Insurance companies

· Since homes are high-value purchase that are long term any buyer ought to consider risk management iclusive of roperty insurance and mortgage. This will helps them to prevent incurring huge major financial losses if things do not go as planned.

· The Conveyancer

· The conveyancer is the individual that takes care of the legal aspects of purchasing property. They also offer legal advice. They mainglt prepare the necessary docunments that the ownership has been transferred meeting all legal requirements within the state.

Assessor feedback:

Resubmission required?

No

2. It is important that as a broker you understand the loan application process and how to effectively manage the progress of a loan application. Outline to Clinton and Stephanie the process that will occur from your first meeting through to post settlement. Please present nine (9) steps in the process. (350 words)

Student response to Task 7: Question 2

Answer here

1. Steps will be taken to verify the financial situation and serviceability of the borrower

2. Credit assistance providersa will make a preliminary assessment,

3. Credit providers will then make a final assessment so as to verify if the credit contract is suitable or not. This will be on the basis of the information obtained from the initial two steps.

4. A final and preliminary assessment to assess the suitability of the loan based on the information derived from the first two steps will be made.

5. A declaration as to the purpose of credit needs to be signed if the loan is to be used predominantly for business or investment purposes.

6. Preparation for settlement: Instructions for settlement are received from all related parties, such as borrowers, solicitors and conveyancers, and reviewed. All documents associated with the loan are thoroughtly hecked ensure that the information contained is correct, and that the documents have been correctly executed.

Supporting documentation such as contract and insurance polices should be provided and checked. Accounts are opened and periodic payment authirited are obtaindfo he payment of aon funds and acceptanece ofo loan repaymets, as necessary. Broker must make sure that client understands the terms and conditions and bank fees and charges and execute the document properly. Mortgage insurance is finalised as required.

7. Registration of security: The loan approval is checked for conditions relating to the taking of security. Staff from related organisation should attend the settlement. The securities are regstrered and stamped in accordnace with organisational policy and guidelines, and relevant legislation. All necessary actions taken with regard to security are confirmed and checked for completeness and accuracy.

8. Disbursement of funds: Authority to fraw down funds is received from approving personnel such as the relationship manger,credit manager or laons officer. Funds should be disbursed as per the instructions provided to the institutions. And client has to be informed when settlement is complete.

9. After settlement, the purchaser, or their solicitoe or conveyancer, must:

· Pay stamp duty to the relevant state giverment department or authoruty, if it has not already been paid.

· Lodge documents regardng the the change o ownership wth relevant state government department or authority.

10. Notify other parties, such as bodies corporate, owner’s corporations and utilities providers of the change if ownership

Assessor feedback:

Resubmission required?

No

3. Briefly explain why is it important for the broker to remain informed of developments in the lending process despite not being actively involved at every stage? (100 words)

Student response to Task 7: Question 3

Answer here

Brokers have to directly interact with the borrowers so as to identify their needs and analyse the data. Then draft a reasonable understanding of their requirements. The main inclusion being the purpose of the loan.

Additionally brokers usually act as liaisons between the lender and the buyer. In our case they will need to stay updated on throughout the process even if they are not playing a huge role in all processes since they need to match the buyers’ property goals to their finances and thus negotiate a loan product that will match their needs. They wil not only do the tiring legwork they will also ensure smooth loan processing since they will be able to guide the buyer throughout the entire process.

Assessor feedback:

Resubmission required?

No

Task 8 — Interest rates

Clinton and Stephanie have reconsidered the loan proposed and have called in to discuss whether they should consider fixing the interest rate on their proposed loan — they have conflicting opinions and are seeking your guidance.

1. Firstly, they need to understand the role of the RBA with respect to interest rates and why it is necessary to have these controls. Conduct some research and answer the following;

(a) What is the role of the RBA with respect to the movements of interest rates?

(b) Why is it important to have these controls and how do they impact mortgage loans in Australia?

(c) Are banks obliged to follow the RBA cash rate? Explain the reason for your answer.

(200 words)

Student response to Task 8: Question 1(a)–(c)

Answer here

(a) RBA decides to either stimulate or ‘cool off’ economic activity

Every month except January, the RBA board meets to decide on the most appropriate monetary policy for Australia’s economic environment. The policy involves setting the cash rate, which is the interest rate banks charge each other on overnight loans.

(b)In Australia it is important for the RBA to set a target for the interest rate on overnight loans between financial institutions in the wholesale money market. This is done by the RBA then borrowing and lending overnight money on the wholesale markets to influence the supply and demand of overnight money, ensuring that the actual overnight interest rate remains as close as possible to its target rate. Moreover, home loan interest rates in the economy are influenced by this interest rate to varying degrees, so that the behaviours of borrowers and lenders in the financial markets are affected by the RBA’s monetary policy.

.

(c)Banks are not obliged to follow suit because the RBA does an estimate of the borrowing rates they think would be appropriate and what cash rate cuts would need to be to achieve that, taking into account the likely movements in funding costs for the major banks.

.

Assessor feedback:

Resubmission required?

No

2. Explain to Clinton and Stephanie some of the advantages and disadvantages of fixing a loan. (150 words)

Student response to Task 8: Question 2

Answer here

Advantages

The main advantage of a fixed rate home loan is certainty. Fixing their loan ensures that their repayments do not change for a set period of time.

During times of very low interest rates, fixing their loan can work to their own advantage, because they can retain a low rate for a fixed term even if the rates rise steeply If the RBA were to decide to lift interest rates in the near future, they will retain a low and stable interest rate for their home loan.

Disadvantages The main disadvantage of a fixed rate loan is that they will not benefit from falling interest rates (should the Reserve Bank cut the cash rate again).

They are also usually fixed for a set term of, say, up to five years, so they will have to ride it out if decide they would prefer to switch to a variable rate or they would wish to sell their property or refinance their loan.

Assessor feedback:

Resubmission required?

No

3. Suggest how Clinton and Stephanie could potentially manage the risks associated with fixing a loan in the event they need to break the fixed loan contract. (100 words)

Student response to Task 8: Question 3

Answer here

If they decide to break that contract by switching, your existing lender must be compensated for any loss they incur. Breaking a home loan during a fixed interest period can be expensive, which is why it's always worth getting a quote from your lender before breaking a fixed interest rate home loan.

If they are thinking about breaking a fixed home loan, their first step is to contact the lender and request a quote for breaking their loan inclusive of the early repayment cost. Then compare the interest costs of a potential new loan, this could be a variable or fixed rate loan option

Assessor feedback:

Resubmission required?

No

Task 9 — Settlement

Outline in detail the steps a Lender should take post-approval in order to document, settle the loan and administer the loan post-settlement. (300 words)

Student response to Task 9

Answer here

1) A declaration as to the purpose of credit needs to be signed if the loan is to be used predominantly for business or investment purposes.

2) Preparation for settlement: Instructions for settlement are received from all related parties, such as borrowers, solicitors and conveyancers, and reviewed. All documents associated with the loan are thoroughtly hecked ensure that the information contained is correct, and that the documents have been correctly executed.

Supporting documentation such as contract and insurance polices should be provided and checked. Accounts are opened and periodic payment authirited are obtaindfo he payment of aon funds and acceptanece ofo loan repaymets, as necessary. Broker must make sure that client understands the terms and conditions and bank fees and charges and execute the document properly. Mortgage insurance is finalised as required.

3) Registration of security: The loan approval is checked for conditions relating to the taking of security. Staff from related organisation should attend the settlement. The securities are regstrered and stamped in accordnace with organisational policy and guidelines, and relevant legislation. All necessary actions taken with regard to security are confirmed and checked for completeness and accuracy.

4) Disbursement of funds: Authority to fraw down funds is received from approving personnel such as the relationship manger,credit manager or laons officer. Funds should be disbursed as per the instructions provided to the institutions. And client has to be informed when settlement is complete.

5) After settlement, the purchaser, or their solicitoe or conveyancer, must:

· Pay stamp duty to the relevant state giverment department or authoruty, if it has not already been paid.

· Lodge documents regardng the the change o ownership wth relevant state government department or authority.

· Notify other parties, such as bodies corporate, owner’s corporations and utilities providers of the change if ownership.

Assessor feedback:

Resubmission required?

No