Me: Hello Miss Celine, how are you today?
Client: I am very good Mr. ____________ and hope you are good too. The reason I wanted to meet you is that I am interested in applying for a mortgage loan.
Me: Oh yes! You did mention your email that you sent for scheduling an appointment for today. Well, before I proceed to tell you about various loan options and products, I would ask you certain questions and collect some information from you to make sure that the products which I recommend are best suited to your financial needs. Please have a quick look at this financial services guide.
Client: Okay, that sounds well. Please you may please proceed with the process and your questions. I have selected a property and I am quite keen on making the settlement soon as there are a lot of other buyers who are interested in the property. I find it a great deal and do not want to miss it at any cost. So, I would like you to please note that I am looking for quick approval and remittance of my loan so that I can make the settlement as soon as possible.
Me: Yes, Miss Celine, I will try my best to make sure that your loan application is processed quickly. However, at times, these things are not in our hands as sometimes there are delays from the side of the lender. But be assured that I will follow them up regularly.
Client: Okay, thanks.
Me: Please let me know some more details about the property that you intend to buy, where it is located, how old is the property? What is the total cost of the property? Are there any restrictions attached to the property
Client: It is an existing property and it’s nearly 50 years old. It is a heritage-listed property located in Circular Quay Sydney. There are no restrictions attached to the property, however, I have been advised of certain conditions that must be met by me to purchase this property- I will have to carry out an extensive pest inspection before purchasing the property and follow the local council rules. The total purchase price of the property is $800000 and the initial installment is for $ 100000 which I will be paying from my savings. My estate agent has advised that other costs related to the purchase would be around $ 30000. I have sufficient savings in my bank account to cover the initial deposit and costs related to the purchase. So, the loan amount which I want to apply is $700000.
Me: Okay, let me tell you that since you are interested in buying a heritage-listed property, there will be certain restrictions on the maximum loan amount that can be provided to you. The reason for this is that lenders consider such properties as risky as they cannot be sold easily in the market. As a result, banks are quite conservative when setting up their lending guidelines concerning heritage-listed properties. Most of the banks set the maximum borrowing limit to 70 percent of the value of the heritage-listed property. There is a term used by lenders- LVR. This refers to the loan to value ratio. If the LVR is higher than 80 percent, then the broker is required to take payment for the Lender's Mortgage Insurance, which is intended to intend to protect the lender against risks in a loan with high LVR.
Client: So, do you mean that I will not be able to get the approval for a loan of $ 700000 because it's a historic property? What should I do in such a case? Are there other options available?
Me: Yes, your understanding is correct. The amount of $ 700000 is equal to 87.5 percent of the total property. While in case of other normal properties, lenders are willing to lend as much as 95 percent of the value of the property, in case of a heritage-listed property like yours, the maximum borrowing amount is usually fixed at 70 percent of the value of the property, nonetheless, some lenders may be willing to lend higher percentage as well. Hence, based on this, the maximum borrowing amount will be equal to $ 560000 only, which is equal to 70 percent of 800000. However, there is one option that can be used if you want to have the entire loan of $700000 approved from the lender.
Celine: Please tell me about this option as I don't want to miss out on this deal.
Me: So, the option is that you can ask any of your friends or relatives to act as a guarantor for your loan. The person who acts as the guarantor must provide their written consent that they are willing to act as the guarantor and must provide any of their property or investment as security against the loan provided by the lender. In case you made a default in repayment of the loan or payment of interest then, the lender has the right to dispose of the investment or property provided by the guarantor to realize the outstanding amount of the loan. Do you know anyone in your contacts, who would be willing to help you out on this and can act as the guarantor?
Client: Ah! Yes, I think my elder sister can help me in this and she would be ready to act as a guarantor for my loan. She is doing well in terms of finances, possesses a lot of wealth, and owns a few properties in Sydney itself. I think she won’t mind acting as my guarantor and keeping any of her properties as additional security for my loan.
Me: That's good if she can act as your guarantor. Please discuss this with her so that we are clear on this and can proceed with your loan application accordingly.
Client: Sure, I will discuss the matter with her this evening itself and will confirm to you by tomorrow morning. She has a lot of affection for me, and I am sure she won't deny it.
Me: Okay, great. So I would now ask you some other questions to understand your current financial position. What is the total value of all assets owned by you at present?
Client: The balance of my savings account with ANZ is 250000 and I own a car Holden Commodore whose current value is around $16000. The total value of my personal effects is $ 60000 and the balance of the Superannuation fund is $ 120000. I think that’s all I own.
Me: Okay, so the total value of all these assets sums to $ 446000. That indicates that you have a strong asset base and would act as a favorable point for approval of your loan application. Please tell me about your short term and long term liabilities and the amount outstanding on each liability.
Client: I have a personal loan with NAB whose outstanding amount is $3000 only and I intend to pay it all next month. Apart from this, the outstanding amount on my credit card is $ 12000. I had taken up a vehicle loan 3 years back, the current outstanding amount on it is $ 5000. There are no other liabilities apart from these.
Me: So, based on this the total value of your liabilities is $20000. Do you intend to incur any major expenditure or purchase any other asset in the recent future?
Client: No, I do not have any such plans in my mind.
Me: Okay, would you be able to provide a rough estimate of your monthly living expenses. Also, do let me know if you have any dependants and the monthly amount that you contribute towards their maintenance.
Client: I am a person who prefers a simple lifestyle so my monthly living expenses are around $2500 and I do not have any dependents.
Me: Okay, so that makes your estimated annual living expenses to $ 30000. Do you have plans to have your family in recent years? The reason why I am asking is that having a family may have an impact on your repayment capacity and it is my duty as a broker to consider every aspect of the client's situation before recommending a product.
Client: oh, no problem. I have no plans to have a family at least in the next 5 years.
Me: Okay, I have determined your current financial position now, and it is quite good. I would like to know about your source of income.
Client: I am employed as a senior software developer with Telstra at annual CTC $180000. My monthly take-home pay is around $14500. It is my first employer and I have been with them for 7 years now.
Me: That's good. Since you a regular source of income and your net asset position is good, I don't think there would be any issues in the approval of your mortgage loan. I would now like to ask you about the loan features that you prefer. Do you possess any knowledge about any of the loan features? What is the term of the loan that you prefer?
Client: To be very honest I do not have much idea about these features, even though I have heard the terms, I do not exactly understand what they mean. Also, I am not sure about the term of the loan but I think it should be for a minimum of 8 years and I want to pay off the loan quickly. Is there any such feature available?
Me: I would explain to you about various loan features and you can then decide which of them you want to have in your selected product. Firstly, there are two types of loans- fixed rate and variable rate. The interest rate on fixed-rate loans is fixed while that on variable rate loans varies based on fluctuations in market interest rates. In case of a fixed-rate loan, you would be required to pay interest at a pre-decided rate and the amount of your minimum loan repayments would be decided in advance and would remain the same during the term of the loan. So, opting for a fixed rate would protect you from the future increase in market interest rates but this also has a demerit that you shall be required to pay interest at a fixed rate only even if the market interest rate goes down. However, in case of a variable rate loan, you shall be required to pay interest at variable rates that would be decided based on interest rates prevailing in the market. I would also like to tell that you that there is a prepayment feature available on certain loans that allow you to make extra repayments on loan without paying any additional fees. There is also a feature available for making lump sum repayments. I believe that both these features would be useful for you as you want to pay off the loan quickly. What is the repayment frequency that you prefer- weekly, fortnightly, or monthly?
Client: I would like to opt for a variable rate loan only and would want the prepayment feature as well. Regarding the repayment frequency, monthly would be a good option.
Me: Okay, I would present to you some suitable products and you can select which of them would be most suitable for you. Both these are variable rate loans and provide prepayment facility. I would like you to confirm that you understand these options. Please have a look at the product disclosure statements that shows the fees and charges related to each of these products recommended to you. I would like to disclose to you that all these lenders are on my lending panel and they provide me a fixed commission of $ 5000 on each application that is approved by them
Client: Yes, I understand these products ad their features and I would go for HSBC.
Me: Okay, I am providing you a list of documents that you must provide at the earliest. These documents include your income proofs and identity and address proofs.
Client: Okay, I will again visit you tomorrow afternoon with all the documents and other details.
Me: Your loan application will be finalized by tomorrow and would be sent to the lender day after tomorrow. I will keep you updated regarding the progress of your application.
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