FNSFMB403 Broking Options Assessment 1 - Knowledge

This assessment covers topics such as benefits of having a finance or mortgage broker, difference between comparison interest rate and average annual percentage rate, eligibility for first home owner grant, risk factors for high-risk borrowers, lending institution using video tutorials, types of home loan products, disclosure obligations on providers of financial products, home loan establishment fees, home loan application negotiation, and online home loan application process.

F NS40 8 15 C e r t ifi ca t e IV i n F IN AN CE & MO R TG AGE B R O K ING
FNSFMB403 Present broking options to client
Asse ssm e n t 1 - K n o wl e d ge

A c t ivit y 1
Identify and explain the benefits of having a finance or mortgage broker advise clients of available loan
products.
(Identify and categorise key lending products available in the finance and mortgage industry).
Act i v it y 1 Answe r
There are many benefits of having finance and mortgage broker as they provide wide variety of mortgage
loans from numerous lenders (Meredith and Darroch, 2018). They search for good deals by having
access to wide variety of mortgage products which provides additional facilities which is meant for
higher value to the customers such as repayment terms, interest rates and loan products. Key lending
products are:
 Fixed rate mortgage loan
 adjustable mortgage loan
 home equity loans
 jumbo mortgage
 Refinancing mortgage

A c t ivit y 2
Explain the difference between a comparison interest rate and the average annual percentage rate.
(Explain accounting and mathematical formulas to calculate: interest rates; mortgage repayments; term of a
loan).
A c tiv i ty 2 A ns w er
A comparison rate indicates such interest rate which includes charges and fees associated with the loan
which is helpful in determining the actual cost of the loan and facilitate comparison among loan services
offered by many mortgage providers (Smith, 2019). On the other hand, average annual percentage rate is
the rate of interest charged to the borrowers for the whole year.
Accounting and mathematical formula
Interest rate = Interest expenses / principal amount * 100
Mortgage repayment = Principal * Rate (1 + Rate)n / (1 + Rate)n – 1
Term of a loan = ln (future value / present value) / ln (1 + r)

Activity 3
Explain how a potential first home buyer would determine if they were eligible for a first home owner
grant.
(Identify and describe current government assistance for: first home buyers; disadvantaged or low income
earners).
Activity 3 Answer
Under the scheme, homebuyer if satisfies the eligibility criteria gets quality for $10000 for buying and
$20000 for building a new home in regional Victoria.
 The applicant must be 18 years or older.
 The home that the buyer is buying must be valued less than $750000.
 The applicant should be a permanent resident and Australian citizen.
 The property should not be used earlier as a place of residence.

Activity 4
Identify some risk factors that would indicate to a lender that a potential borrower may be a high risk.
(Detail borrowing risk factors).
Activity 4 Answer
Risk factors associated with the borrowers that must be indicated to the lender are as follows:
 Income of the borrower and their commitments (Paterson and Bant, 2020).
 Assets held
 Deposits provided
 Credit history
 Living expenses

Activity 5
Explain some of the benefits of a lending institution using video tutorials on its website for internet banking.
(Identify and describe the key features of different presentation techniques, including technology supported
presentations).
Activity 5 Answer
 It is advantageous for lending institutions in connecting with their customers as and when needed.
 Faster operations
 Fewer chances of mistakes and wrong doings
 Build brand image and identity of banks
 encourage customers to adopt internet banking for greater safety and security.
 Less costs of operations for lending institutions.

Activity 6
Briefly identify and outline these three types of home loan products available to an Australian borrower:
Variable Rate; Fixed Rate and Split Rate loans.
(Identify and outline the key products and services provided by different lenders).
Activity 6 Answer
Variable rate home loan as the name suggests is that where the interest rates fluctuates regularly which
may get up or down at anytime. It is changed by the lender on continuous basis.
A fixed rate home loan is that where the interest rate is certain for the entire term of a loan.
A split rate loan is that where the loan is divided into two parts on which fixed and variable interest
rates are applied.

Activity 7
A cco r d i ng t o A S IC ’s d i scl osure gui d e RG 16 8 , wha t ar e t he d isc losur e o b lig at io ns o n pr o vid er s of f in an c ia l
pr o d uc t s t o r et a il c lien t s?
(Explain key features of relevant codes of practice in regards to disclosure).
Activity 7 Answer
Disclosure obligations on providers of financial products are:
 It should timely.
 Must be relevant & complete.
 It promotes product understanding & comparison
 It highlights important information
 It should satisfies the consumer's needs.

Activity 8
Explain the features of home loan establishment fees.
(Explain the features and applications of relevant fees, charges and commissions).
Activity 8 Answer
Features of Home loan establishment fees:
 It aims to cover the cost associated with the documentation of the mortgage.
 It is charged by the lender.
 It is charged at the beginning itself while the loan amount has been deposited in the account.

Activity 9
Describe the home loan application negotiation from the borrower’s point of view. (Describe the
negotiation process).
Activity 9 Answer
 Choosing the right bank
 limiting personal guarantees
 Positing ourselves as an ideal borrower by giving big amount for deposits.
 Providing proof for making timely repayments
 going to lender with the offer of the highest rate acceptable.

A c t ivit y 10
Explain the online home loan application process.
(Explain the loan application process).
A c t ivit y 10 Answe r
 Filling application form along with attaching required documents.
 Payment of processing fees.
 Approval from the lender.
 Offer letter processing.
 Property papers processing and conducting legal check.
 Final deal for the loan
 Agreement signing
 Disbursement of loan

REFERENCES
Meredith, P. and Darroch, J. L., 2018. Innovation in the Mortgage Market. In Stumbling Giants (pp. 49-
66). University of Toronto Press.
Smith, M., 2019. Insurance advisers find a single voice. Professional Planner, (121), pp.22-25.
Paterson, J. M. and Bant, E., 2020. Mortgage broking, regulatory failure and statutory design. Journal of
Banking and Finance Law and Practice, 31(7), pp.7-21.