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Q.1. Every lender has a specific set of criteria through which it makes its assessment for the home loan applications. These specific criteria are the determinants that your loan application will be approved or rejected. However, lots of lenders are available in the market to choose from and most of them impose similar criteria and asks for the same requirements from the borrowers. Here are many of the most common conditions banks look for in borrowers:
The NCCP Act or the National Consumer Credit Protection Act 2009 is a legislation that has been designed to protect the consumers’ rights and ensure professional and ethical standards in the finance industry.
The mortgage brokers and the lenders are required to hold a valid credit license or have to be registered as an authorized lending representative. All these entities compulsorily have to adhere to the rules specified in the NCCP Act.
The NCCP Act has been enforced and regulated by ASIC, (Australian Securities and Investments Commission) considering the rulings of the National Credit Code (NCC).
The amount of loan that one wants to borrow should not exceed the maximum loan-to-value ratio (LVR) of the loan. In other words, the borrower is required to make a minimum down payment of 10% of the purchase price of the property. It is also required to ensure that the proposed borrowing figure lies between the maximum and minimum loan limits implied by the lender.
(LVR ratio = MA / APV)
MA = Mortgage Amount
APV = Appraised Property Value
For Philip and Jennifer:-
MA = Loan + LMI
MA = $ 440,000 + $ 8487
MA = 448487
An APV is given by:
APV = Purchase price + Estimated Cost
APV = 490000 + 25000
APV = 515000
Therefore LVR = 448487 / 515000
The LVR is 87.08 % and the down payment is around 10.20 % with an amount of $ 50,000
Jennifer and Phillip can meet their deposit and total cash contribution for the loan required as they have sufficient pool of assets including deposits in a savings account. Their asset statement is shown in the following table:-
Capital Bank savings account (joint)
Capital Bank cheque account (joint)
Holden Commodore SS 2007 (Philip)
Kia Cerato Sport 2015 (Jennifer)
Superannuation — Capital Bank (Philip)
Superannuation — Capital Bank (Jennifer)
Household effects (insured value)
They have a joint Capital Bank savings account that has a current balance of $ 78000. However, the couple wishes to make a contribution of only $ 75000 from this deposited fund. After making the full initial contribution a balance of $ 3000 will be left in the savings account.
Repayment requirements based on the loan required
Philip and Jennifer are planning to borrow a loan of $ 448580 for a 30-year term that means 360 months at an interest rate of 4.5% PA. AS per the Genworth Serviceability Calculator, the Monthly repayment comes out to be $ 2,229.42, where their total monthly income from salary is $ 12750. That means only 17.5 % of their monthly income will be spent on the repayment of the loan amount.
Also, they can make any amount of additional repayments from time to time without facing any penalty or additional charge from the lender.
The property that the couple is intending to purchase will be held as security against the home loan by the lender. That means, if borrower default on loan, the lender has the right to sell the property and retrieve the lent amount. The lender can examine the type of property in terms of the following:
Location: Seaside Lane Edgartown is a very good region.
Nature: The couple wants to purchase a residential property for their use. The lenders have less strict policies for such contracts.
Size: The property size is usually relevant only to units and not very much applicable to residential properties. However, as a brief description, the proposed property is a 2 bedroom, 2 bathroom apartment.
Title: The property will need to have a freehold or strata title without encumbrances. If you default on your home loan, your lender will want to be able to sell the property without restrictions. The couple is purchasing a Strata Title apartment
LMI is required if the home loan deposit is less than 20% of property's 'lender-assessed value', in such a case the LVR ratio remains larger than 80%. For this case, LVR is 87.08 % and hence LMI has to be taken.
The couple has to pay $ 8487 as LMI.
The recommended loan amount is 80 % of LVR value. The 80% LVR value for a property of $ 515000 is = $ 412000 (515000 * 80%).
Ability to meet the financial obligations
AS per the Genworth Serviceability Calculator, the Monthly repayment comes out to be $ 2229.42, where their total monthly income from salary is $ 12750. That means around 17.5 % of their monthly income will be spent on the repayment of the loan amount.
Concessions on the charges
Ability to make additional payments from time to time without penalty
The loan application fee is waived under Special Offer
Q.2.a. As per the Genworth Serviceability Calculator, the monthly repayment comes out to be $ 2229.42, with an annual interest rate of 4.5% (variable). The NDI ratio comes out to be 2.53:1m therefore NDI (Net disposable income) remains $ 99256.88. Also, the couple has to spend only 17.5 % of their monthly income on the repayment of the loan amount.
Now if the annual rate of interest increases by 3% that means it becomes 7.5%, then their monthly repayment will become $ 2,927.33. That means the burden will increase but they will be able to make the payments.
b. Increase in the interest rates is external factors that are neither in the control of the borrowers nor lenders. An increase in interest rate can negatively affect the borrower as they now have to pay higher EMIs. Such risks can only be managed by selecting a loan product which provides interest rates which are fixed. That means a fixed rate interest loan is the appropriate product option that may remove the interest rate risk
LMI is required if the home loan deposit is less than 20 % of property's 'lender-assessed value', in such a case the LVR ratio remains larger than 80%. For the case of Philip and Jennifer, LVR ratio is approx. 90 % and hence LMI has to be taken.
Other options that can be presented to avoid the cost of LMI are:-
Ask your parents to become a guarantor on the home loan which will provide additional security on your home loan.
Jennifer as an accountant can avail reduced interest rates and waived LMI.
As per the NCCP Act, A loan will be suitable for the lender if:
It meets the objectives and requirements of the consumer, and
The consumer is in a perfect capacity to make timely repayment of the loaned amount without facing any substantial hardship.
The lender to ensure with the above two points has to make enquiries about the consumer’s financial situation and their requirements and objectives which are mentioned as follows:-
Consumer’s financial situation
Consumer’s source of income: Both the loan applicants, Jennifer and Philip are full-time salaried employees working on Managerial positions in their respective organizations with an annual income of $ 95000 and $ 58000 respectively.
Length of Service:
Jennifer is working since March 2006.
Philip is working since October 2005. Also, Philip is hoping for a promotion within the next 12 months
Consumer’s fixed expenses: The couple has the following fixed expenses:-
An item of overall annual expenditure for living expenses amounted $ 33,000.
Apart from that Philip has a personal loan liability for which he has to make an annual payment of $ 2160.
Consumer’s credit history: The couple has a clean credit history and they have made all their outstanding payments on time including their credit card and personal loan payments.
Consumer’s requirements and objectives
The couple requires a loan of $ 440,000 for a period of 30 years to purchase a residential property for personal use.
The government of New South Wales (NSW) (a southeastern Australian state) has implemented various schemes for the First Home Owners. As a first home buyer, the buyer is entitled to pay the transfer duty at a concessional rate. The buyer may even get an exemption from payment of any transfer fees under the First Home Buyers Assistance scheme (FHBAS).
As a first home buyer, the buyer will be eligible for a concession or exemption in transfer duty as follows.
If the value of the proposed home is less than $ 650,000, then the buyer can apply for a full exemption so that he/ she is not required to pay any amount as transfer duty.
If the value of the proposed home ranges between $ 650,000 and $ 800,000, then the buyer can make an application for concession in the rates of transfer duty. The amount you’ll have to pay will be based on the value of your home.
Since the value of the proposed home in the prevailing case is $ 490000 which is less than the prescribed limit to make an application for a full exemption from the transfer duty.
Real estate agent
A real estate agent is a licensed professional who represents buyers or sellers in real estate transactions. Their main role is to communicate and market about various properties and make advisory on keep the properties ready for sale and make negotiations with potential buyers.
The knowledge of the fair value of the property is an important factor while formulating a loan application. That is why the valuer is of great importance and can play a crucial role in the process of home-buying and approving the loan application. A lender generally engages with an independent and impartial valuer to ensure that both the parties (buyer and lender) know the appropriate amount of loan that can be warranted.
Pest and building inspectors
They examine the requirement of the costly renovations or pest treatment that can enhance the value of the property
Q.2. Development and maintenance of relevant networks with professionals can be done with making a good character of you. Here are some suggestions:
Current and former co-workers: Make viable connections with the professional with whom you are currently working as well as those you've had worked in the past.
Fellow members of professional associations: The best way to get in touch with this professional is by attending conferences and events that have been organized by professional associations.
Friends and family: By keeping your friends and family apprised about your goals in a career you can build an effective network. There are possibilities that some former friend or distance relative is a professional required in your field.
Q.3. Understanding client’s need in the field of consultancy is a very difficult task but very important at the same time as it will help the consultant to make pieces of advice, refer products and provide investment strategies in the very benefit of the client. The following process can be followed to ensure you have a good assessment of your clients’ needs:-
Establish and maintain an honest relationship of trust with the client
Clarify the perspective of the client on their present status and future targets
Assess that client is ready by evaluating the clarity of vision, motivation and personal capacity
Assist the client in evaluating the area of improvement in their activities
Advise the client to obtain consumer credit insurance
Remember, at the center of any academic work, lies clarity and evidence. Should you need further assistance, do look up to our Accounting and Finance Assignment Help
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