John has been a self-employed carpenter for 10 years, and operates his business under a company structure.
He has approached you for help in arranging finance for a potential purchase of an investment property. He was referred to you by his accountant, who is a friend of yours. Apart from purchasing the home he currently lives in some 12 years ago, he has had no other experience in dealing with a mortgage application, though he has recently obtained finance for a new work truck via his local bank.
He has found a property he likes, and has already secured the services of a solicitor to assist with the purchase.
John currently owes $375,000 and estimates his home to be worth $650,000.
He has agreed to purchase the investment property for $300,000 and needs to borrow the full purchase price plus $20,000 to cover stamp duty, and other associated costs including a $5,000 ‘cash reserve' in case there are delays in securing a tenant for the property.
Task 1 - Using equity
1. How is it possible for John to borrow 100% of the purchase price + costs?
2. Assuming John uses the same bank to finance his home and the investment property he wishes to purchase, what is the loan to value ratio (LVR)?
Task 2 -Self Employed special considerations
Explain how applying for a ‘Low Doc Loan' could lead the mortgage broker to be accused of recommending an ‘unsuitable' product.
Task 3 -John's professional network
1. Briefly outline to John the process that will occur from your meeting onwards.
2.. Although some of these stages do not involve the mortgage broker, briefly explain why it is important to keep abreast of developments.
Task 4 - External dispute resolution
During the course of the loan process, John is starting to become upset with the time it's taking to get him an approval. Although you've explained that this is because of delays with the lenders processing system due to staff being away, you're concerned the matter may escalate beyond your control.
If COSL was your EDR provider, explain their role in the process.
Task 5
John have called to discuss whether he should consider fixing the interest rate on his loan - he say his parents have said ‘you never beat the bank when you fix', and yet his friends are telling him about a loan where he can ‘have a bit of both'.
1. Explain the role of the RBA with respect to interest rates and why it is necessary to have these controls.
2. Suggest how John could potentially solve his dilemma.
Task 6 - Effective access to files
The loan application is finally approved. Loan offers have been produced by the lender, as have numerous documents that the client needs to access and review.
John's away at the moment, and his email provider has a size limit on the data that can be sent via email.
What is a potential solution for John, and name a provider that could assist?