FNS40821 – Certificate IV in Finance and Mortgage Broking

Case Study (No 3) Peter and Sally White

Peter and Sally are first home buyers and they are looking to determine exactly how much they can borrow. (You
may research the market to determine – search lender websites or you aggregation software if you have access).

Notes to the Case Study

1. They are eligible for the First Home Buyers/Construction Grant

2. They have a little over $40,000 in savings
3. They want a loan that is fairly simple and can allow extra payments
4. They would like to know if they make payments fortnightly how would that affect their loan
5. They are hoping to start a family in a couple of years
6. At present they have no dependents
7. Sally parents have offered a gift (non-repayable) of $15,000 to assist in a property purchase
8. They don’t want to go with the “bigger” banks

Current Position:

Debts

ANZ Card Limit $20,000 Balance $500

CBA Card Limit $5,000 Balance $Nil

CBA Personal Loan Car $10,500 Monthly Repayment $390.00

Income: Both PAYG

Peter White $78,000 Salesperson/Retail

Sally White $48,000 Part Time/Receptionist

Requirement of Case Study

1. What type of loan structure would suggest, and

2. Your rationale behind this option/strategy

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FNS40821 – Certificate IV in Finance and Mortgage Broking

Case Study – Peter and Sally White (Worksheet)

Either handwritten or typed answers are acceptable

1. In this scenario we would like to suggest a variable loan.

Either we can do this as,
1. Two loans, one stand alone for the land and other for construction.
Please note with this option customers have the choice of setting up the land loan as fixed or variable.
As customers have indicated they would like to make extra repayments we can set both of them as
variable loans.
2. Single loan for land and build. This option may be unsuitable for the customers as certain banks don’t
allow for redraw until construction is complete and loan is fully drawn.

2 1. Customer would like to make extra repayments.

3. Since it’s a construction loan, loan need to cater for periodic drawdowns which fixed loans are
unable.

Answer to question 4

Choosing to make loan payments fortnightly instead of monthly can have several financial implications for
borrowers. The impact of making fortnightly payments is influenced by the frequency of payments and the
structure of the loan. Here are some key considerations:

More Frequent Payments: Fortnightly payments mean making half of the monthly payment every two weeks. This
results in 26 payments in a year (as opposed to 12 monthly payments).

Reduced Interest Over Time: Because there are 26 fortnights in a year but only 12 months, borrowers making
fortnightly payments effectively make an extra monthly payment each year. This additional payment can lead to
reduced interest costs over the life of the loan.

Accelerated Loan Repayment: The more frequent payment schedule accelerates the repayment of the principal
amount. As a result, borrowers can potentially pay off their loan faster and save on overall interest.

Interest Savings: Making fortnightly payments can result in interest savings over the life of the loan. This is due to
the compounding effect of the more frequent payments, reducing the outstanding balance on which interest is
calculated.

Indicative borrowing capacities are below.

Heritage bank $448000

BOQ $441000

ME bank $487000

Funds available

40000

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FNS40821 – Certificate IV in Finance and Mortgage Broking

15000 Gift

30000 Grant

Total 85000

Second option, to buy an existing (used) place

In this case they only have access to 40000(their savings) plus $15000 (gift from their parents)

So a total of $55000. There are no monetary grants available for buying an established house but they can still
qualify for stamp duty waiver if the house is under $500000.

Maximum borrowing capacity with just the personal loan (assuming customers would want to use the amount
which they could otherwise use to pay out the CBA personal loan towards deposit) and both of the credit cards
being paid out and closed.

Heritage bank $574000

BOQ $560000

ME $672000

Now, considering if they would want to reduce LMI and avoid paying stamp duty with a 10% scenario based on the
$55000 they have (this is subjective to banker speaking the customers) they would be looking at a $500000 house.

They also have the option of maximizing the borrowing upto 92.5% base LVR and total LVR at 95% to buy
something around $530000. In this scenario their minimum contribution towards deposit including LMI would be
$44625 and $9699 towards stamp duty and other expenses with the total adding to $54324

Additional points to discuss

If they have decided on a budget so I can fine tune the borrowing capacity taking into consideration of the LVR

Offset account

Monthly expenses

Indicative repayments and if they are comfortable to meet them.

IF they are happy to reduce limits on their credit cards.

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