Kaplan Certificate IV in Finance: Mortgage Broking Role Play Analysis

This document presents a transcript of a role-play scenario designed for a Certificate IV in Finance and Mortgage Broking student. The student, acting as a mortgage broker from ABC Mortgage Broking, engages in a simulated consultation with a client (the volunteer) regarding a home loan application. The conversation covers various aspects of the loan, including the loan amount, repayment period, interest rates (fixed vs. variable), and deposit requirements. The student explains the benefits of Lenders Mortgage Insurance (LMI), advises on fixed-rate loans, and discusses strategies for reducing interest costs. The role play also touches on income protection insurance and key disclosures related to the property. The student addresses the cost of rectifying defects in the house and clarifies the implications of making extra payments. Finally, the student explains the components of lending costs. The assignment assesses the student's ability to communicate financial concepts, provide advice, and handle client inquiries effectively.

Volunteer: Good morning.
Student: It is a pleasure to have you in our office.
Volunteer: It is my pleasure also to meet you today.
Student: How is my buddy, Glen?
Volunteer: He is doing great and please do accept his regards.
Student: After I perused the documents you submitted, I noted that you require a home loan of
$490,00 whose repayment period is 30 years with lending charges of about $25,000 and a
variable interest rate of 4.5%, and among other things, requiring a deposit of $75,000.
Volunteer: Yes it is so.
Student: Your current financial statements give a picture of healthy finances which qualify you
for the mortgage which you applied for. Your savings of $ 78,000 and joint monthly gross
income of about $13,000 look good to any lender.
Volunteer: Does it mean that if we capitalize Lenders Mortgage Insurance on our loan does it
mean that we will use little saving than we had thought?
Student: Yes, if you subscribe to Lenders Mortgage Insurance and it is capitalized on to your
loan, and you have strong monthly income, the deposit required on your loan will come down
and you will therefore use reduced deposit. Lenders Mortgage Insurance protects the lender from
risks associated with the loan. Borrowers who have Lenders Mortgage Insurance are required to
make a deposit of only 20% of the loan applied. For your case you will be required to pay
20%*$490,000 which equals to $9,800 only.
Volunteer: We have chosen to have a fixed rate loan, what is your advice?
Student: Fixed rate loan is good in the sense that it remains the same for entire life of the loan
even if market rates change. On the other hand variable loan rates keep changing depending on
the interest rates supported by the economy, and the amount you pay per month may not be
predictable. I advise you to stick to your choice of fixed rate loan.
Volunteer: What should I do to reduce, in the long run, interest costs and repay off the loan
more quickly?
Student: The best option is to reduce the loan term. Generally, when the loan term is shorter
interest rates are lower. The interest paid over a 15 year mortgage is much less than the interest
paid over a 30 year mortgage and at the same time you have cleared off your loan within a
shorter period.

Volunteer: I am interested in income protection insurance. Can you refer me to someone who
will guide and assist me to get it?
Student. That is a bright thought. Income protection insurance is good because it ensures that
you receive your monthly income even at the time when you are not working because of either
sickness or injury. For you who will have a home loan, your monthly repayments will not fail
when your income is insured by income protection insurance. I will refer you to my friend in that
industry known as Allan.
Key disclosures.
The key disclosures which have been supplied to the client include one from the seller. The
house in question has defects in the kitchen which need fixing, and it is through the seller’s
disclosure that these physical problems were brought to light. The prospective lender also had
their own disclosures to make to the client. They include: mortgage loan application, loan
estimate, lending costs, loan structure and monthly payments.
Student: If you need any clarifications feel free to ask questions.
Volunteer: Thank you. Who meets the cost of rectifying the defects in the house? Is it the seller
or myself (the buyer)
Student: Well, before the valuation of the house was made, inspection was done to determine the
physical condition of the building. The defects which were discovered were factored into the
value of the house and therefore the cost of the house fell in proportion to the magnitude of the
defects found. The costs of repairing the defects will, therefore, be met by you.
Volunteer: Will it be acceptable if on certain months, I pay above my monthly minimum
repayment requirement?
Student: Yes, you can. Your loan has a facility known as redraw which enables you withdraw at
any time the amounts you paid above your monthly minimum requirement. If you do not
withdraw the extra payment will be applied to reduce your loan.
Volunteer: What are included in the broad term, lending costs?
Student: Lending costs include inspection fees, appraisal fees, application fees, recording fees,
and attorney fees, among others.