FNSFMB512 - Client Project #1 (Suzie and Martin Connor) - Case Study Questions v1.0

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Feb 20, 2024

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FNSFMB512 – Identify and develop credit options for clients with special financial circumstances (Release 1) Client Project (Suzie and Martin Connor) Client Project #1 S UZIE AND M ARTIN C ONNOR Case Study Questions What you need to do: Page | 1 of 8 © Real Estate Academy Australia Version 1.0 – May 2022 RTO 32426

FNSFMB512 – Identify and develop credit options for clients with special financial circumstances (Release 1) Client Project (Suzie and Martin Connor) Answer the questions below by writing in the space provided. You are required to answer all questions correctly. If correct, you will see ‘Satisfactory’ or if incorrect you will see ‘Not Satisfactory’ in your grades section of your learner portal next to the assessment name. The assessor will provide feedback and a Record of Results in the assessment task once graded. You will be required to resubmit your work for any ‘Not Satisfactory’ assessment tasks. What you will need: Use the learner material provided in your online student portal as well as research materials such as books, internet, magazines, workplace documentation etc. to assist you in gaining the knowledge required to answer the questions. Remember that the assessment task is self-paced and open book. You can use whichever resources you have to answer the questions. What you need to submit: Your answers to these questions. How to Submit your Assessment: Upload your completed document into your learner portal following the instructions provided within the assessment task. You can drag and drop the file into the window or use the add file icon in the top left of the submission window and select the file your wish to upload by using the browse/choose file option. Click on “finish attempt” to submit it for grading. Page | 2 of 8 © Real Estate Academy Australia Version 1.0 – May 2022 RTO 32426

FNSFMB512 – Identify and develop credit options for clients with special financial circumstances (Release 1) Client Project (Suzie and Martin Connor) Scenario 1 – Suzie and Martin Connor Suzie and Martin Connor are a married couple without dependent, owning their owner-occupied home in the suburb of Ipswich, 4305 QLD. The property has been valued by a local real estate agent for $320,000 a couple of weeks ago as they want to sell their property to upsize as they plan on having a baby soon. The balance of their current mortgage loan is $102,000 and they would like all fees and costs associated with the purchase of a new property included in the new mortgage. They want to keep their savings for their child to come. It’s been agreed between them that Suzie would terminate her current casual employment to be a stay-at-home mother and look after their first child for at least the next two years or so. They visited a home a few days ago only two blocks from their current home and fell in love with the place. They made an offer at $510,000 that was accepted this morning. The couple is adamant that this is THE home they want, and they are ready to take appropriate moves to make it happen as soon as possible. They are a ‘connected’ and very busy couple so prefer a lender with great online services and if possible, allows for a fully digital application. While they are very excited about this fantastic news, they are also a little nervous as they have no idea yet on how to make their wish come true. Both Suzie and Martin’ risk profiles were assessed, and their risk capacity was evaluated as being ‘Moderate to Aggressive’. Whilst their current property has been on the market for two weeks and has received lots of interest, they have not secured a contract yet on their place and they hope this will not stop them from purchasing their newly found dream home. The following information and supporting documentation have been provided by Suzie. ● IDs ● Assets & Liabilities ● Needs Analysis Questionnaire ● Suzie’s latest 2 payslips ● Martin’s latest 2 payslips ● Latest Home Loan Statement ● Latest Credit Card Statement ● Latest Car Loan statement ● 3 months bank statements ● 3 months saving bank statements Based on the supporting documentation and the information you hold, complete the activities below. This activity will assess your ability to determine special financial needs and risk profile for clients. Page | 3 of 8 © Real Estate Academy Australia Version 1.0 – May 2022 RTO 32426

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FNSFMB512 – Identify and develop credit options for clients with special financial circumstances (Release 1) Client Project (Suzie and Martin Connor) Question 1 Identify from the supporting documentation and information you hold what are the goals & objectives, requirements, and situation of the Connor’s couple. Suzie and Martin Connor Goals and Objectives 1- To secure a new home for their expanding family 2- They would like all fees and costs associated with the purchase of new property included in the new mortgage 3- They aim to preserve their savings for impending child-related expenses. Requirements 1- Busy couple they want a lender with a great online services and if possible allows for a fully digital application. 2- They want to keep their saving for their child to come 3- They haven’t sold yet their property and they hope this will not stop them from purchase the house they want. Situations 1- Suzie will terminate her casual job to be at stay-at-home mother for at least the next 2 years 2- Their risk capacity was evaluated as being “Moderate to Aggressive” 3- The balance of the current mortgage loan is $102’000 Page | 4 of 8 © Real Estate Academy Australia Version 1.0 – May 2022 RTO 32426

FNSFMB512 – Identify and develop credit options for clients with special financial circumstances (Release 1) Client Project (Suzie and Martin Connor) Question 2 From your findings from the previous question, assess and analyse the clients’ special financial needs and describe the most obvious type of loan that might be best suited to the clients’ situation. Justify why this type of finance opportunity would be appropriate according to their circumstances. Given the circumstances of the Connors, a "Bridging Loan" emerges as the most fitting financial solution. Bridging loans are designed for short-term needs, providing the flexibility to acquire a new property while in the process of selling an existing one. Typically, these loans extend over a term of six to twelve months, allowing ample time to finalize the sale of the current property. Interest payments during the bridging period are usually calculated on a pro-rata basis. In the context of a bridging loan, the lender assumes the existing mortgage on the property to be sold, in addition to financing the purchase or construction of the new property. Importantly, fees and costs associated with the new property's acquisition can be incorporated into the loan. The total borrowed amount, encompassing the existing mortgage and the new property's purchase price, is referred to as the peak debt. Bridging loans are commonly structured as interest-only during the bridging period, where the payable interest is capitalized until the sale of the existing property is finalized. This ensures that the Connors can manage their finances effectively during this transitional phase, aligning with their short-term needs and financial goals.  The Connors have already made an offer of $510,000 on a property they love. A Bridging Loan would provide them with the necessary funds to secure their new home without waiting for the sale of their current property.  The couple desires to include all fees and costs associated with the purchase in the new mortgage. A Bridging Loan can accommodate these costs, allowing them to streamline their finances and manage expenses effectively.  Suzie and Martin express the intention to keep their savings for the impending arrival of their child. A Bridging Loan would enable them to use the proceeds from the sale of their current property to repay the loan, preserving their savings for future needs.A Bridging Loan aligns with their short-term financial needs during this transitional period.  he Connors have a 'Moderate to Aggressive' risk profile.A Bridging Loan caters to their immediate goals and allows them to navigate the financial transition without depleting their savings. Question 3 Identify and define the risks and constraints associated with this type of loan. A bridging loan is a short-term financing option typically used to bridge the gap between the purchase of a new property and the sale of an existing one. While it Page | 5 of 8 © Real Estate Academy Australia Version 1.0 – May 2022 RTO 32426

FNSFMB512 – Identify and develop credit options for clients with special financial circumstances (Release 1) Client Project (Suzie and Martin Connor) can be a useful financial tool, there are several risks and constraints associated with bridging loans that borrowers should be aware of: 1. High-Interest Rates: Bridging loans often come with higher interest rates compared to traditional mortgages. This can result in significant interest payments, especially if the borrower is unable to repay the loan quickly. The cost of borrowing may be a constraint for some borrowers, and they need to carefully assess whether the benefits of the bridging loan outweigh the high-interest expenses. 2. Short-Term Nature: Bridging loans are short-term loans, usually ranging from 6 months to 12 months. If the borrower is unable to sell their existing property or secure long-term financing within the specified period, they may face difficulties in repaying the loan. Borrowers need to have a clear exit strategy, such as selling the existing property, to repay the bridging loan within the specified time frame. 3. Interest-only loan: the payable interests are capitalised until the existing property is sold. Capitalizing interest results in a higher overall cost of borrowing compared to loans with regular interest payments. Borrowers should carefully assess whether the benefits of the interest-only structure outweigh the additional costs. 4.Market Conditions: Fluctuations in the property market can affect the sale of the existing property, potentially leading to a lower-than-expected sale price. This can result in insufficient funds to repay the bridging loan. Borrowers should be cautious about market conditions and have contingency plans in case the property sale does not go as anticipated. 5. Exit Fees and Charges: Some bridging loans may have exit fees or early repayment charges. Borrowers need to be aware of these costs, as they can add to the overall expense of the loan. Exit fees may discourage borrowers from repaying the loan early, even if they have the means to do so. 6. Loan-to-Value (LTV) Ratios: Lenders typically offer bridging loans based on a percentage of the property value (LTV ratio). If property values decrease or if the lender assesses a lower value, it may impact the amount the borrower can borrow. Borrowers may face limitations on the loan amount, requiring them to contribute more equity or find alternative financing sources. Before opting for a bridging loan, individuals should carefully assess their financial situation, understand the terms and conditions, and have a well-thought-out exit strategy to mitigate these risks and constraints. Consulting with financial advisors and legal professionals can provide valuable insights and assistance in navigating the complexities associated with bridging loans. Page | 6 of 8 © Real Estate Academy Australia Version 1.0 – May 2022 RTO 32426

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FNSFMB512 – Identify and develop credit options for clients with special financial circumstances (Release 1) Client Project (Suzie and Martin Connor) Question 4 According to the legislative requirements, assess the impact of the risks identified in question 3 against the risk tolerance of Suzie and Martin and clarify if this type of finance aligns with their risk profiles. The impact of the identified risks against Suzie and Martin's risk tolerance, considering legislative requirements are: 1. Interest Rate Risk: - Legislative requirements required lenders to provide information on potential interest rate changes. Suzie and Martin's 'Moderate to Aggressive' risk profile suggests a moderate tolerance for financial risks. They should ensure that they can manage potential increases in interest rates within their budget, aligning with legislative expectations. 2. Income Stability Risk: - Lenders typically assess borrowers' income stability during loan applications. - Suzie's decision to leave casual employment may be a consideration. Adequate documentation and financial planning will be crucial to demonstrating their ability to meet repayments. Ensuring alignment with legislative requirements regarding income verification is essential. 3. Property Valuation Risk: - Lenders may conduct independent property valuations, and loan-to-value ratios are often regulated. - As property values are subject to market conditions, Suzie and Martin's risk profile should align with their comfort level in managing potential fluctuations. 4. Market Conditions Risk: - Economic conditions affecting property markets are external to borrowers but must be considered. The 'Moderate to Aggressive' risk profile suggests a willingness to accept a certain level of market risk. They should be aware of potential impacts on property values and market conditions, ensuring alignment with legislative requirements and disclosure obligations. 5. Fees and Costs Risk: - Legislative requirements often mandate transparency in disclosing fees and costs. - Suzie and Martin's risk profile should align with their ability to cover unexpected or higher-than-anticipated fees. Compliance with legislative standards regarding fee disclosure is important. 6. Loan Approval Risk: - Lenders must adhere to responsible lending practices and assess borrowers' ability to repay. - Suzie and Martin's risk profile should align with the lender's criteria for loan approval. Clear communication and documentation will be essential, ensuring adherence to legislative requirements for responsible lending. Page | 7 of 8 © Real Estate Academy Australia Version 1.0 – May 2022 RTO 32426

FNSFMB512 – Identify and develop credit options for clients with special financial circumstances (Release 1) Client Project (Suzie and Martin Connor) 7. Contract Sale of Current Property Risk: The sale of the current property is essential for funds required for the new purchase. Suzie and Martin's risk profile should consider potential delays in property sale and have contingency plans to align with legislative requirements for property transactions. 8. Economic Downturn Risk: - Impact Assessment: Economic conditions impacting job security are external factors. - Suzie and Martin's risk profile should consider their ability to navigate potential economic downturns and maintain financial stability, ensuring alignment with legislative expectations. In conclusion, Suzie and Martin's 'Moderate to Aggressive' risk profile aligns with the identified risks, provided they carefully manage and plan for each risk. Ensuring compliance with legislative requirements, particularly in terms of responsible lending and disclosure, is crucial to confirming that this type of finance aligns with their risk profiles. Thorough communication with lenders and financial advisors is recommended to navigate these considerations effectively. Question 5 You are accredited with the following lenders and are to assess your ability to meet your clients’ goals and objectives: are you comfortable you can meet these and act in the best interests of Suzie and Martin? Justify your response. ● Westpac ANZ ● Heritage Bank ● BOQ ● CBA ● Bankwest Yes, Suzie and Martin can be confident that their goals and objectives will be met. The lenders with which I am accredited, including Westpac, ANZ, Heritage Bank, BOQ, CBA, and Bankwest, have a long history of success. They are renowned for offering competitive loan products and have a proven track record of providing quality service. I am committed to ensuring that Suzie and Martin receive the best possible financial solutions to achieve their goals, Page | 8 of 8 © Real Estate Academy Australia Version 1.0 – May 2022 RTO 32426