Question 7.8

Mortgage brokers assist their clients to complete their preferred lender's credit application form, as well as applications for the First Home Buyer's Grant and (where applicable) stamp duty exemption. Examples of these forms are set out over the following pages and you are required to complete them on behalf of Ross and Melissa. Remember that each form must be signed by the client, so facsimile signatures must be attached,

Case Study Evaluating and processing a loan application

Read the following case study then answer the questions that follow.

Ross and Melissa Cooper are a young couple who have been married for five years, during which they have been renting an apartment while saving to buy an apartment of their own. They do not have any children at this stage.

After some months searching, they have found a small two-bedroom apartment that suits their needs. The purchase cost of the property is $480,000, and they have provided a deposit of $60,000. You are recommending a standard variable loan.

Ross has been working at Gaines Consulting Pty Ltd. for 12 years and has a salary of $80,000. Melissa has been working at Jackson Equipment Hire Pty Ltd for 8 years and has a salary of $70,000. Neither has had previous employment, apart from casual work when they were younger.

The full details of Ross and Melissa that you have collected are as follows:

Applicant 1 Applicant 2

Loan purpose Purchase home (owner occupied)

Amount and type of loan sought $480,000 standard variable rate

Deposit $60,000

Address Unit 2, 27 High St.,Mackville, NSW. 2080

Status Renting Renting

Years there 5 years 5 years

Contact details 02 9200 1111 02 9310 2000

Mobile 0400 100 156 0418 960 000

Number of dependants Nil Nil

Employment Gaines Consulting Pty. Ltd Jackson Equipment Hire Pty Ltd

How long? 12 years 8 years

Gross income (p.a.) $80,000 p.a. $70,000 p.a.

Credit history (Applicant 1)

Personal loan to purchase a car since repaid.

Personal credit card with Central Bank with a limit of $3,000. Current balance: $300

Note: All credit cards are repaid in full when due.

Credit history (Applicant 2)

Personal credit card with Northern with a limit of $2,000. Current balance: $300

Store card with Wilson's Department Store. Current balance: S250

Note: All credit cards are repaid in full when due.

ASSETS AND LIABILITIES

Assets

Details; Cash at bank: $15,000

Deposit paid on property: $60,000

Motor vehicles:1.$15,000

2.$7,000

Personal effects: $30,000

Business value: Nil

Total assets:$127,000

Liabilities

Details Monthly payments Amount owing

Cash in bank: Credit card limit: $2,000 $2,000 $300

Deposit paid Credit card limit: $3,000 $3,000 $300

on property

Total liabilities $600

Surplus/deficiency: $126,400

OTHER DETAILS:

They are seeking a loan term of 25 years. Other requirements are:

-proposed settlement date 6 weeks time

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

-monthly repayments

-redraw facility.

The applicants will have no other financial commitments other than their monthly mortgage commitments, rates and utility costs and strata fees.

The current variable home loan rate is 6% pa.

Note:For the purposes of this assignment, any first home purchase assistance should be ignored.

OTHER INFORMATION

APRA is concerned that interest rates may rise and because of this it is requiring all lenders to "stress test" all housing loans at a borrowing rate of 7% p.a.