FNS40815 Fnsfmb 402 Assessment 1 Knowledge PDF

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Diploma of Finance and Mortgage Broking Management...

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FNS40815 Certificate IV in FINANCE & MORTGAGE BROKING FNSFMB402 Identify client needs for broking services

Assessment 1 - Knowledge

FNS40815_ FNSFMB402 Assessment 1 Knowledge

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Released January 2019 Page 1 of 9

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Activity 1 Explain the concept of ‘honeymoon rates’ offered by lenders periodically. (Explain basic financial and accounting terms and concepts relating directly to mortgage or finance broking including: variable and fixed rate interest rates; types of mortgage accounts; procedures and principles of deposit bonds; financial records relating to different ownership models).

Activity 1 Answer Honeymoon Rates: Honeymoon rates from the lender are lower introductory rates for a short period of time. Lenders advertise this offer in order to attract new borrowers. This lower rate is designed to attract borrowers and is offered for a set period of time, after which the interest rate increases in line with the lenders other mortgage products.

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Released January 2019 Page 2 of 9

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Activity 2 What sort of information could a mortgage broker require to verify the credit status of a home loan applicant? (Explain credit and credit reporting services).

Activity 2 Answer A mortgage broker requires your Personal data include your full name, date of birth, home address, driver's license number, and employer details to verify the credit status of a home loan applicant.

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Released January 2019 Page 3 of 9

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Activity 3 What part, if any, do general economic conditions play when assessing applicants for loans? (Describe key features of the economic environment and business cycle, financial markets and the roles of industry participants, interest rates, exchange rates and inflation).

Activity 3 Answer If you’re taking out a commercial loan, the lender may evaluate local economic conditions and the overall business climate, both within your industry and in associated industries that could affect your business. As part of conditions, the lender will also ask the borrower what the purpose of the loan is.

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Activity 4 Most standard home loans are regulated under the National Consumer Credit Protection Act (NCCP), legislation that is designed to protect consumers & ensure ethical & professional standards in the finance industry, through the National Credit Code (NCC). Identify and describe the key features of the Act that impact on mortgage brokers. (Identify and describe key features of the legal environment and relevant legislation affecting finance and mortgage broking services in regards to: disclosure: privacy: industry codes of practice: National Credit Code).

Activity 4 Answer Key features of the Act that impact on mortgage brokers:

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Released January 2019 Page 5 of 9

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Activity 5 Describe the circumstances where a lender would require an applicant to take out lender’s mortgage insurance. (Describe the key features of lender’s mortgage insurance).

Activity 5 Answer The fee the lender charges a client for LMI can be many thousands of dollars and is usually added to the home loan amount. Credit providers normally charge the client this one-off fee to cover this insurance if the client borrows more than 80% of the value of the property. Whether a client is charged LMI will also depend on loan to value ratio (LVR), a percentage that is calculated by dividing the amount of home loan by the purchase price (or appraised value) of the property. Generally, the higher the equity the client has in the property (or the lower the LVR), the less chance the lender will charge a fee for LMI, and where they do, the less the fee will be.

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Released January 2019 Page 6 of 9

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Activity 6 Explain the term “lender’s pre-approval loan” and list the benefits and conditions of pre-approval. (Explain loan transaction terminology and definitions of the parties involved including: lender and borrower; lessor and lessee; mortgagee and mortgagor).

Activity 6 Answer Lender’s pre-approval loan: A pre-approval is simply a lender’s evaluation on how much a client can borrow based on their credit history and income. When applying for a pre-approved loan the client will need to provide some additional documentation, such as:

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Released January 2019 Page 7 of 9

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Activity 7 Explain what a second mortgage is, and how it works. (Explain real estate terms and concepts including: land titles and searches; strata title versus company title; multiple securities; securing second mortgages; subdivisions of title; partial discharge of mortgage where multiple securities are held by lender).

Activity 7 Answer Second mortgages are called subordinate because, if the loan goes into default, the first mortgagee gets paid out first before the second mortgagee. This makes second mortgages riskier for lenders and generally means that second mortgages come with higher interest rates than first mortgages.

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Released January 2019 Page 8 of 9

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Activity 8 Identify and explain some common fees associated with taking out a home loan. (Categorise and explain types of fees and charges).

Activity 8 Answer Application fees. Also called establishment fees, these are fees that cover the cost of the documentation of the new mortgage. This is a one-off payment that can roughly cost between $200 - $700 depending on the loan, though many lenders waive establishment fees on some products or for special promotions.

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Released January 2019 Page 9 of 9...