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
Saving your work
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Name your file as follows: Studentnumber_SubjectCode_Submissionnumber
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Include your student ID on the first page of the assignment.
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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.
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.
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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 asessor 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.
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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
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Section 1: Case study 1 — Clinton and Jennifer Andrews
Background
Clinton and Jennifer Andrews live in Sydney with their two school-age children. Theybought 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.
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.
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 tothat document. (40 words)
Student response to Task 1: Question 1(a)
As per “ Responsible Lending disclosure obligation” mortgage brokers must provide following four documents to customers:
(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)
The documents provided to the client for the levying of the fees for the purpose of brokerage are given below
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
Task 3 — Assessing the clients’ situation
Using theExcel 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
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?
(e) any other issues that may impact, now or in the future, on the clients’ ability to meet their obligations, including any possible risks.
Student response to Task 3: Question 2(a)
In this aspect, it can be viewed that there are two maximum degree of amount that Clinton and Jennifer can undertake as loan. The primary and the lower sum consists of $885,954, which is in regards to thecalucltationopf growth serviceability and the second one is the bigger amount which is the real sum that amounts to $1,160.333. This is due to the fact that the special interest that the couple are entitled to.
Student response to Task 3: Question 2(b)
The amount of deposit has been 10% of the actual value of the property and the amount sums upto $45,000.
Student response to Task 3: Question 2(c)
The collective net income of the couple is $140,368.71 and the monthly combined income is $11697.39.The living cost for the couple is $38,400 having a monthly value of $3200. Thus, the combined monthly value less by the cost of living is $8497.39
Student response to Task 3:
The couple would be in need of LMI. It has been mainly due to the fact that they have been only contributing about 10% of the total loan amount. The LMI value comes to $8,627
Student response to Task 3: Question 2(e)
After the observation of the facts and figures that have been submitted by the couple Clinton and Jennifer, it can be dfined that they would not have much effect in accordance to the ability to meet their accountabilities as they have both fullt time and permanent jobs for the long run that would be adequate to cover any kind of risk which would permit them with a steady cash inflow. In accordance to the current situation, the real NDI ratio has been viewed to be steady and helathy and comes up to 2.08:1 in accordance to the Genworth’s ratio of 1.76:1. The completion of the settlement reveals that there has been a surplus fund of $8,627 and this additional fund can be used for the purpose of meeteing any unexpected costs. In the worst circumstances, they have the capability and the option to exploit the equity as well. The remaining risk that may be faced by the client is the interst rate. If there is a transformation in the real time situation and the couple are no longer entitled for any kind of special rate, then their NDI will have an effect bit it has been viewed that NDI has been so steady and vigorous that they would be able to look after their financial compulsions.
Although Clinton and Jenniferhave 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
Lender’s Mortgage Insurance (LMI) is an one-off payment method which is to safeguard the lenders in situations when the borrower is unable to undertake repayments and when the loan to valuation ratio (LVR) is more than 80%. This can even be capiatlised in the repayment of the loan. A rise in depsosit would explain a lower loan value and thereby would reduce the LVR. Therefore, in this circumstances, the copuple are to reduce the LVR in order to prevent the LMI. They can make use of their savings and the equity of the off-set accounting to deposit that is more than 20%. As the LVR of the couple is lower than 80%, it can be said that they can dodge the cost of LMI which has a vlue of $8,627.
Explain how it could be possible for Clinton and Jennifer 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
Clinton and Jennider have an off-set account of $1,80,000 and furthermore they have an equity of $610,000 over the house in which they live. It has to be recorded that the couple still have a mortgage value of $1,90,000 on this house.
Hence, universally it has been viewed that they can make use of their savings in order to pay for the loan that they have taken for the residential property and exploit their equity in order to gain 100% of the loan for the investment property. These costs of interest would be tax deductible as the loan was undertaken in order to buy the inmvestment proper
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
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 competen
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’.
Premium payable LMI
In order to take the amount as loan, the couple has to take a loan that comes to $405,000 and the premium of LMI will come to $8,627 with the capitalised premium value of $43 if there are any.
Requirement of the client
The couple are both employees and have been salaried and have two children who are cuirrently school going children. The couple have gained the knowledge that their income that is available is suffient for them to buy another investment. Therefore, the primary need at the present scenario has been to gain financial consultation in accordance to the buying of the new investments with appropriate leverage with the help of the residential investment loan, due to which the repayment option would be fortnightly and will have internet banking with the withdrawal facility. However, as their accountant have provided them with come recommendations in accordance to the benefits of negative gearing. It has been because that Clinton and Jennifer has the want of taking specific suggestuions from the financial service providers in order to buy the investment without having an effect on their present standard of living.
Current financial position
By observing the information that has been given to the couple, it has been discovered that they require a total total amount of $470,000 in order to purchase the new house and from the overall amount, a sum of $65,000 would be paid to the client. However, the desired loan amount comes to $413,000. Therefore, the demanded own funds will come to $56,373 and the extra fund that will be the remainder with the client would be $8,627 in order to cover the costs that have been unprecedented.
IMB Budget Home Loan- This provides competitive rate, effortlessness and other features like the unrestricted repayments that are withdrawal free, flexible for repayment and the discount in the loan life-cycle. If the budget home loan is not able to satisfy the needed criterion of the client, IMB offers other options that are varbale in nature of the home loan like the introductory variable home loan, necessary home loans and the fixed loan options that are available to them. However, in order to be eligible for the special rate, the borrower requires to be the owner of the occupier and open a transaction account for IMB.
NAB choice package fixed rate home loan- This loan provides discount on a general fixed interest rate and certain other fees when it is linked with the Tailored Fixed rate Home Loan. It even provides home loan to the customers with 350,000 NAB reward points out of which they make application for the banking bundle and NAB eligible home loan before 30th November 2017.However, the home loan requires to be withdrawn before 30th December 2017 and this would not be the NAB refinance or any refinance from U Bank or Advantage. The minimum amount that is eligible for the home loan is $250,000.
It is observed that the IMB budget home loan is recommended as it is simple and the interest rate is competitive. Furthermore , it provides numerous options for the home loans like the preliminary variable home loan, standard variable home loan, essential home loan, and discount-split home loans. Thus, the Clinton and Jennifer can choose the option with respect to their need and preference. In addition, the couple is in need of the internet banking and the facility of re-withdrawal and these conveniences are discovered in the IMB Budget Home Loan.
However, the NAB choice package fixed rate home loan is recommended as it provides discount on the standard fixed interest rate and certain other fees when it is combined with the Tailored fixed rate home loan. They will be receiving 350,000 NAB reward points as it is very precise from the fact finder that they are in need to apply for the loan immediately that is before 30th November and it is projected that the loan will be taken before 30thDecenber 2017. Furthermore, the minimum eligible loan value is $250,000 and the demand for the couple has been found to be $413,000.
By observing the demands and the financial scenario of the couple, it is suggested that prior to undertaking application of the loan from the sources that have been explained, the client should gain knowledge about their presence and needs in a precise manner. They would even look into the schedule of the repayment of the loan and the interest rate. Furthermore, they should examine the other sources before making any final decision with respect to the loan.
The “Regulation 28L”provides the process for giving credit disclosure statements.
These reports can be provided to a client personally or, if the consumer harmonies and so can be forwarded electronically or made available for reclamation in a format that is electronic in nature.
The credit guide disclosure generally includes contact details,name and Australian credit licence number or credit representative number, and data about the method for determiningdisagreements with a client, including the agreement details to access:
the internal dispute resolution (IDR) procedure, and the EDR scheme of which one is a member.
It is seen that one of the key interest conflict is that if the client take the loan from NAB Choice Package Fixed rate of home loan, the lender of credit assistance would gain a commission at 1% of the overall loan value. The other interest conflict is that the accountant and the tax consultant of the client is a relative to the solicitor. Thus, there are probabilities that the solicitor would npot assess the documents of the couple in details.
(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)
(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)
There will be fees and charges to be payed by the borrower, regardless of what type of loan is chosen by the borrower. The most common fees and charges are such as Solicitor’s /conveyancer fees, stamp duty, house insurance, mortgage registration, property valuation fee, Lenders Mortgage Insurance, Application or Establishment fees, account management fees, exit fees, break or switching fee, transaction fees, redraw fees, land transfer fee, mortgage discharge fee, strata cost etc.
Task 7 — Clinton and Jennifer’s professional network
Name three (3) parties Clinton and Jennifer may wish you, as their broker, to keep informed of the progressof their finance application who are not directly involved in the loan processing? (100 words)
Student response to Task 7: Question 1
(1) Conveyancer/Solicitor: The legal side of the buying of the property is considered by a licensed and eligible conveyancer. If a solicitor is even employed, then they can give out legal consultations even. Their role has been to build the documents in order to guarantee that the transfer of ownership of the property has satisfied the legal desires in the state or territory where the Clinton and Jennifer resides.
(2) Accountant and financial advisor:A trained professional who aids the individuals to take care of their finances by providing recommendations and advices on the finance related problems like the investments, insurance, taxes, college savings, retirement and taxes, mortgages and planning of estate by depending on the client demands and requests. In this circumstances, the couple is purchasing an investment property and their accountant has been giving out various advices with respect to the benefits of negative gearing.
(3) Mortgage Underwriter: The mortgage broker is the bridge between the borrower and the lender who would have discussions on behalf of the borrower. They undertake various research works on several products that are availbale in the market and legal jobs and even the process of settlement. Usually, the mortgage broker does not impose any money from the broker as they receive commission from the lender.
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 Jennifer 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
After the meeting with couple ,it is very imporatant to to ensure the nine steps that would be explained later requires to be taken.
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?
Student response to Task 7: Question 3
The entire home loan procedure can be initiated at any point of time among 19 to 46 working days. The operations with the mortgage broker abridges with the process as a regulation and is given to the borrower through the approval phases and presentation and terminates the strain faced during buying the house.
If there is an existence of specific restrictions of demands or time while buying the property, the broker will help in negotiating longer and shorter time of settlement and operate with the lender in order to statisy the demands of the client.
Task 8— Interest rates
Clinton and Jennifer 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.
Firstly, they need to understandthe 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.
Student response to Task 8: Question 1(a)–(c)
The Reserve bank of Austyralia (RBA) is the Australian central bank and is obligated for maintaining the trajectory of the certified cash rate for the country. The Reserve bank is even obligated for transferring the rate of cash to aid in supervising the currency, inflation that is seen in the economy, interest rates and the issuance of the bank notes. It provides distinct banking services as required by the Australian government and their agencies and to numerous international central banks and corpoprate firms. Hence, all the banks appreciate and therefore follow the cash rate provided by RBA. The Reserve Bank Board undertakesdecisions related to the monetary policy in accordance to the cash rate – the rate of interest on overnight loans in the money market. These decisions have an impact a level of other market and institutional rates of interest.
The cash rate can have an impact on the rate of interest on the mortgage, it can have an impact on how much interest on the savings might earn and on a wider scale, it is locked up with jobs,inflation and the overall health of the economy. The cash rate is usually the lowest rate of interestat which banks derive from each other and it acts as a benchmark rate in thenation.The cash rate have an impact on the other rates of interest in the economy, having an impact on the behaviour of lenders and the borrowers, economic operations and ultimately the inflation rate.
In deciding the rates of interest charged to borrowers, the banks take into account various factors that is inclusive of the cash rate, the risk that the loan might not be repaid, the essentiallimits to create return for shareholders, and the level of competition from the competitors
When the RBA increases the rate of cashusually it is due to the fact that they want to put the limitations on growth of demand and the inflation rate. Increased rate of interest rates incline to act as a limitation on lending growth, which has a negative effects on the inflationanddemand.
If there is a fall in the cash rate, the RBA is looking to increase economic operations and the inflation by inspiring the consumer expenditure and business investment – lower rates of interest that encourage businesses and households to take loans rather than saving which would lift the economic operations.
The factor that needs to be known is that the interest rate will alter when the RBA undertakes the decision of eithing cooling off or encourage the economic funcitons. If they are in the proposition of undertaking a loan for buying the property, it is essential to prudently consider what the economy has been doing so that certain ideas can be gained with respect to where the interest has been going. Explaining distinctly, rise in the economic functions leads to higher rate of interest. During the property purchase during the time of boom would indicate a rise in the purchasing price which may fall and there may be probabilities of lower rates of interests and therefore the client may take the risk of paying more for the asset that may lower thgeir value in the short run. During the long run, the real esatate increases their value. Hence, it is advisable for them to have a fixed home loan as they have been offered already a special interst rate and it would provide satisfaction in scenarios if there is a rise in the interest rate by the RBA.
Explain to Clinton and Jennifer some of the advantages and disadvantages of fixing a loan. (150 words)
Student response to Task 8: Question 2
The clients are assured according to the repayments as it does not alter a distinct time limit. In circumstances the interest rate rises over the rate that is fixed, the client would be happy and satisfied by gaining knowledge about the fact that they are paying out lower than the rate that is variable. This would explain that they would be able tp manage their finances earlier and maintain a specific standard of living with a sense of confidence.
The con of fixing a loan has been that the client will not gain from the fall in the rate of interest in circumstances when the Reserve Bank reduces the level of cash. The client may even miss out on the benefit on a minimum amount of repayments that can be brought out by the variable rate.
The client would even have to pay for the fee for brokerage if they alter or even pay their loan within the fixed rate of time. Also the fixation of the loan is not suitable in case they transform their mind and have the idea of selling the house or would want freedom to switch the home loans if they find a more efficient offers for home loan.
Suggest how Clinton and Jennifercould potentially manage the risks associated withfixing a loan in the event they need to break the fixed loan contract. (100 words)
Student response to Task 8: Question 3
It is seen that there have been a fixed home loan rate which is a legal agreement that has been guarntedd for the repayment at a fixed interest value on the loan for a specific period of time. If the client tries to close the contract by changing the lender, then the existing lender requires to be compensated for any sort of loss that would be faced by them.
The other choice that has been available to the client is to take a bet on both the process of having a section that is fixed and a part of the variable in the interest on the loan. A split loan would grant the client to supervise various risks in accordance to the interest rate that raises while still being able to take extra repayments.
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)
After assessing, gaining and sanction of the application of the home loan, the lender will provide the documents that have been given below:
Letter of Offer – The lender provides the letter of offer to the clients in a written format and duplicate copies are given to all the associated parties who have eagerness in the eventual and loan application, for instance the guarantors. It has the home loan information with the terms and condition with respect to which the lender intends to approve and provide funds.
Mortgage document – An article that will be given by lender to the Territory or State as a part of amortgage registering. The mortgage document name that the lender constructs has to be similar with the name given in the transfer that the solicitor will write with the land titles office or else the mortgage paper is null and void.
T&C letters: This paper is for the client to recognize the loan acceptance terms and conditions. If there are two or more debtors, each party requires to sign the contract. Certain T&C letters have a part where the borrowers provide data like the name of their conveyancer or the solicitor, information of the fund disbursements and the nominated account for fees that is to be levied.
Witness acknowledgement – This is in need to be completed by a witness who is independent in order to confirm the identity of the borrower. The witness who concludes and sign this agreement must be the same person who witnessed the mortgage document signing for the credit provider
Disbursement and settlement form – After all the documentation has been executed successfully, the lender transfer the loanable funds to the borrower. Specifically, this document permits the lender to extract the funds from their account to satisfy their full amount that is due at the settlement, or to deposit funds that is surplus wherever applicable
Direct loan payment form – The borrower has to fill up the entire form if they desire to establish a recurring payment to their linked loan accoun
Section 2: Case study 2 — Tony and Lorraine Denton
Background
Tony and LorraineDenton have a small cleaning business at which they have been working for the lasteight years. As it is only the two of them in the business they operate as sole traders.
They have approached you to help restructure their finance, as they are finding the management of their debts a struggle following the loss of one of their major cleaning contracts.
After further questioning, you realise that the situation is more serious than they originally explained; they have missed payments on their mortgage, only pay the minimum on their credit card of 3% each month and the work car they have on lease is expiring. They have a $15,000 residual or balloon payment due and do not have the funds available.
When they lost the major contract and fell behind on the mortgage payments, they spoke to their lender (Popular Credit Union) and accepted a ‘hardship application’. The missing payments have now been corrected by extending the term of their loan. This happenednine(9) months ago and no report was made to the credit agency.
Hardly Normal Furniture Store
Did not keep to interest free contract and paying debt b
Super Car Loan lease
3-year contract expiring next month and need $15,000 to pay residual
$850.00
$15,000
Cleaning Contract Supplies
Purchase approx. $1,000 per month in supplies, they are behind 1 month
What communication skills might you use to confirm Tony and Lorraine’sunderstanding and knowledge about credit and finance, as well as their current position, including establishingtheir requirements and objectives with the refinance?
Provide examples of how you would use these skills to establish Tony and Lorraine’s level of financial knowledge.
Student response to Task 10
The Examples are :
Verbal communication
Verbal and oral communication is given with the assistance of speech. This explains that the speaker will make use of suitable tone and look to deliver it to the auditor. For a fruitful discussion with the speaker with the listener each one of them needs to engage in an active manner. The features of conversation under verbal communication are explained as follows:
It is any sort of communication that are done with the alphabets that are in the form of writing. It is the suitable and most general process of communication in any business and is developing with the reliance on the e-mail ,SMSs, social media and other e-communication equipments. A productive written communication for the purpose of business is given as follows:
Task 11 — Responsible lending obligations
The National Consumer Credit Protection Act 2009 imposes ‘responsible lending’ obligations on brokers that must be satisfied by all people arranging loan applications. The primary objective under responsible lending guidelines is that the credit facility offered to the borrower is ‘not unsuitable’ for the borrower, meets their requirements and objectives and will not create substantial hardship.
How would you define ‘substantial hardship’ (detailed information on this subject is found at RG 209 issued by ASIC)? (150 words)
Student response to Task 11: Question 1
The substantial hardship is defined as the unqiue, technological, demonstrable, legal, economic and any kind of hardship for the individual who has asked for the variance or the waiver that impairs the capability for the person in order to sustain working under the enclosed practices.
A loan will nopt be suitable if the client is unbale to meet the financial obligation of the contract or is not able to meet without substantial hardship. Furthermore, the customer would be unbale to afford the loan in situations like:
If the provider of credit after the assessment do not agree with the client with respect to whether the repayment of the loan requires substantial hardship or not.
Where the loan has been planned from hiding the data that the repayment is not possible without the substantial hardship. Where the consumer is unbale to pay out for the loan, the adviser shall oppose that the client cannot meet the financial resposnsibilities without substantial hardship or the loan is unbale to meet the criteria that has been demanded.
What are the benefits of debt consolidation for Tony and Lorraine? (100 words)
Student response to Task 11: Question 2
The debt consolidation means taking out a new loan for the intention of repayment of the multiple credit card debts and balance.
The vital benefit of the debt consoliodation for Lorraine and Tony has been that the entire property are free of risk. Furthermore, the rate of interest can be more with respect to the secured loan but on the same time can reduce in accordance to the interest rate on the credit cards. Thus, it will reduce their burden of interest and its repayment. It even relates in having minimum payment amount required to be paid every month and there is least possibility that the client will miss payments or would miss out payments.
Tony and Lorraine have decided to consolidate their debts into one home loan with two splits, one for the existing home loan and a second split for the all other debts. They will not be including the cleaning supplies bill as they pay this in full each month.
In the template below provide a new liabilities summary once Tony and Lorraine have completed the debt consolidation including their new monthly repayments.
Note: They have chosen ‘New Bank Loan’ who are offering a 4.5% interest rate on a variable, principal and interest loan over 30 years.
Student response to Task 11: Question 3
Lender
Interest rate
Monthly repayment
Debt
New bank loan(home loan joint)
4.5%
$1378.00
$270,000
Other
4.5%
$162.00
$30,000
What savings will Tony and Lorraine obtain in monthly repayments?
(Include calculation how you determined the savings.)
Student response to Task 11: Question 4
The total debt amount that is desired to be repaid with the assistance of the new loan at 4.5% has been found to be $300,000. Thus, the interest amount would come to $1540. However, if the loan is not taken, then they would have to pay a total interest that sums up to $4,117. Therefore, the savings would come to $1557.
Task 12 — Self Employed special considerations
As Tony and Lorraine areself-employed,what documents will you need to obtain and assess their income? (150 words)
Student response to Task 12: Question 1
It has been seen that Tony and Lorrained are self-employed and their revenue is earned from the sole trading in the cleaning business and the most current return of the individual tax and assessment that has been taken by the Australian Taxation Office (ATO) and the Profit and Loss Statement and defined balance Sheet will be sufficient evidence for determining the income of the client. Additionally, where the balance sheet, profit and loss statement, tax returns and tax assessment are provided and these documents need to be supported by registered or certified accountant. Leaving this aside, the returns for the personal income tax for every individual supported by the most current tax assessment provided by ATO and highlights the liabilities of the company that includes the balance tenure and the rate that is needed to be submitted for the assessment of their income.
If a Low Doc application is an option for the customer, name three (3) extra documents you will need to obtain and assess. Explain how each these documents will establish their income? (150 words)
Student response to Task 12: Question 2
The added documents required for low doc applications for assisting the mortghage or lending repayment in a secured manner are given below:
Bank Statements: the most efficient way for disclosing the performance of the self-employed projects is providing the data with the assistance of the bank statement. This will revela the degree of money within the account and the expenses that is paid for taking the profession.
Letter from the accountant: The evidence from the accountant in the written presentation can be proved beneficial from the implementation of the self-employed home loans. The letter shall outline the scenario in accordance to the business finance and should help other documents that are revealed to the lender.
Statement of the business operations: The statement in accordance to the operations of the business is altered by looking at the specifications of the firm and it discloses the obligations of tax in accordance to which the firm is subject to. This includes the service tax and the goods tax thorugh the PAYG instalments and withholding. Furthermore, the evidence in accordance to the past 12 months is even provided.
Explain how applying for a ‘Low Doc Loan’ could lead the mortgage broker to be accused of recommending an ‘unsuitable’ product. (250 words)
The loan that are inappropriate includes the contracts where it is projected that the borrower will be unable to repay or can repay only with the assistance of the substantial hardship or the contracts that does not satisfy the aim and the requirement of the borrower. Therefore, the mortgage broker shall undertake reasonable enquiries in accordance to the financial circumstances of the borrower with respect to their needs and aims. Leving this beside, they shall make reasonable efforts for reaching the requirements in the report of the borrower. The use of this information would assist the mortgage broker to determinewhether the recommendations of the loan product is suitable or inappropriate. If it is found that the credit products are unsuitable, then the broker can move forward with respect to the recommnedatrions. However, in accordance to the low-doc-application, the income and the financial circumstances of the borrower are not evaluated in a proper manner by the mortgage broker and even the lender. Furthermore, under the low-doc-application, distinctly the borrower does not have the current tax returns or complies with the tax affairs, which in turn makes it very difficult to confirm their personal income. Therefore, under the Low Doc loan the broker can be accused for recommending ineffective products.
Task 13 — Advising on strategies
Following the presentation of your proposal, Tony and Lorraine say that they would like your advice regarding loan and debt management strategy tools that are available to help them to pay down their home loan as quickly as possible.
List strategies or methods that will help them achieve their aim.
Note to students:You may refer to the MoneySmart website for information on this subject and your answer may also include available mobile phone apps used for debt management.
Provide the advantages and disadvantages of each. (300 words)
Student response to Task 13
The rules for the management of debt have been defined below:
However, just before loan refinancing the following factors can be managed and each one of them are given below:
The various strategies for managing the debt or the loan has been explained below:
Match the assets and the liabilities
Benefits: It helps in transferring from the stocks to the cash with the advent of time for the purpose of saving for retirement and for scenarios when the consumer may have to bear huge expenses. It even helps in assessing the assets that are availbale to the individual during the time when needed.
Disadvantage: The assets that are long term in nature will not be financed with the assistance of theshort term credit for instance like the credit card. Furthermore, taking the long term financing and the short term will even be prominent to be possible.
Advantages: The refinancing of the mortgage at lower rates is an innovative idea. It would even simplify the borrower to pay back the short term compulsions with the available liquid savings.
Disadvantages: The consumers may require to make payments from the closureof the out-of-pocket expenditure and it has proved to be an intelligent idea only when the consumer starts to rebuild the liquid savings immediately.
Reduce the expenses related to the regular debt
Advantages: The minimization of the debt expenses will help the individual to lower their every day payment of interest and their instalments. Thus, is is a smart decision to eliminate the debt even if the loan rates are at a favourable position.
Disadvantages: It has been generally observed that the debts are serviced every month and therefore comes under the inescapable common expenses.
Task 14 — Impact of credit history
Tony tells you that his former wife failed to properly meet their unsecured personal loan debt obligations before they separated. Although he eventually repaid the debt he is afraid that this incident may count against him when he applies for a loan. There are a few things Tony can do as he is concerned about his credit rating. What information would you provide in the following two situations?
Provide Tony with the details of three (3) major credit reporting agencies and explain what information may be recorded on his credit file. (Information can be sourced from the websites of credit reporting agencies and <https://www.oaic.gov.au>.) (200 words)
Student response to Task 14: Question 1
At the present circumstances, there are three key credit reporting agencies that are operating in the market of Australia. They are namely the Tasmanian Collection Service, Dun and Bradstreet and Veda Advantage. It is seen that Veda Advantage os one of the well known consumer credit reporting agency that defines that it maintains the credit worthiness related information for over 11 million consumers residing in New Zealand and Australia. They have more than 5000 consumers from a wide range of companies that includes the finance, telecommunications, banking, retail, trade credit, utilities, government, lenders, credit unions and mortgages.
The data that are added in the credit report have been given as follows:
Resubmission required?
Tony has decided he would like to obtain a copy of his credit report from either Veda or Dun & Bradstreet. Explain what options are available for each provider, how long it takes to obtain a copy, and the associated costs. (100 words)
Student response to Task 14: Question 2
Veda (Equifax): The option for this agency explains that one gains the copy of the credit report within a few minutes after the purchase of any of their loan package and can even receive the free credit report which is to be forwarded within the 10 working days. The cost related with the loan package have been given below:
Dun and Bradstreet: The client can receive the report for free within 10 working days or can even select the fast-tracked online report within one working day by paying a charge of $10. It has been observed that there has been a cost of $179 in order to receive the copy of the credit report from Dun and bradsheet.
If there are errors on file, what is the procedure for Tony to follow in order to have these errorsrectified?Hint:Refer to the Vedawebsite. (150 words)
Student response to Task 14: Question 3
If one receives a copy of the credit report and the customer is in the idea that there are any defects in the report, it is crucial to get it rectified as the information that is availbale in the credit report has an effect on the credit rating and whether or not one may attin the loan, credit account or the credit card like the electricity contract and the mobile phone
There are simple stages the client can undertake like:
What are the Lender’s legal obligations if they decline an application due to the content of the credit agency file?
If the loan application is rejected by observing the information availbale in the credit agency file, then the lender is accountable to provide the list of the factors for their decisions and the notice that defines the crucial factors. It is essential to provide the following things:
Define the procedure for rectifying the discrepancies of the report or adding in extra data for the generation of the report in an effective manne
What options are available to Tony and Lorraine in the event that the loan was rejected by the lender you initially proposed due to a credit report (150 words)
Student response to Task 14: Question 5
The options are:
Resubmission required?
During the loan process, Tony is starting to become upset with the time it’s taking to get him an approval. Although you’ve explained that this is because of delays with the lenders processing system due to staff being away, you’re concerned the matter may escalate beyond your control.
As a broker it is important to understand the role of the Credit Ombudsman. Explain the function and role of the Credit and Investment Ombudsman (CIO) in the EDR process. (200 words)
CIO provides anindependent, free and impartial disagreement resolution service to the clients. The CIOenables the determination of complaints among the participants and the consumers of the scheme. In doing so, CIO provides both financial services providers and consumers with asubstitute to legal actions for determining financial services disputes. The CIO are not funded by the government, nor do they control the financial services companies or self-control participants of the scheme.
The CIO are neededtosatisfyvarious benchmarks arranged by the Australian Securities and Investments Commission (ASIC) and have been permitted by ASIC to function as an External Dispute Resolution (EDR) scheme in the financial services company.
The Credit and Investments Ombudsman (CIO), earlier known as Credit Ombudsman Service Limited (COSL), has been permitted by the Office of the Australian Information Commissioner (OAIC) to manage private and credit documenting complaints under the Privacy Act 1988. All the credit providers are needed to be aadherent of an EDR scheme identified by the OAICprior to they are allowed to reveal credit data to a credit reporting agency or access such data. If an individual is discontented with the result of a credit reporting agency or a credit provider about their criticism, or about the result of an access or alteration request, they can protest to CIO about this as long as the credit reporting agency or credit provider who is a member of CIO.
What could be the maximum financial compensation limitimposed by the CIO?
Student response to Task 15 Question 2
The maximum level of panelty that can be charged by the CIO is to the highest value of $309,000 and furthermore other remedies like the apology that may be requested.
Resubmission required?
The loan application is finally approved. Loan offers have been produced by the lender, as have numerous documents that the client needs to access and review. The lender has requested these documents be forwarded as soon as they are available. Tony and Lorraineare away at the moment and their email provider has a size limit on the data that can be sent via email. Name a service provider that could assistin solving this problem? (100 words)
Student response to Task 16
The documents can be sent with the assistance of various service providers who aids in sending bigger files through email. In this scenario, the client can make use of Sendspace and DropSend applications that can assist in sending these big files. These webistesoffer security in scenarios when the desktop or the phone is lost or damaged.
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