David Subnauth

Grade 10B
Economics Homework
Question
Penny and Bill are newlyweds. They wish to purchase a new home, as well as to start a joint savings
account for the future.
a. Giving reasons, explain which financial institution the newlyweds should go to obtain a
homeownership loan. [6]
b. Giving reasons, explain. which financial institution the couple should save with. [6]
c. Explain why the informal sector might not be useful for their needs. [3]
Answers
a. Homeownership Loan
For their homeownership loan, Penny and Bill should consider a mortgage lender like a bank or credit
union.
Reasons:
 Mortgage lenders are regulated, ensuring transparency in loan terms, interest rates, and fees.
 Mortgage lenders have a variety of loan products such as fixed-rate and adjustable-rate mortgages
with different down payment requirements which will allow for different budgets.
b. Choosing a Savings Institution
For the case of the newlyweds, a commercial bank may be ideal as such banks offer a broader range of
services like checking accounts, safety deposit boxes, and convenient branch access. While interest
rates might be slightly lower, the additional services can be valuable.
c. Why the Informal Sector Falls Short
The informal sector, may not be a good option for Penny and Bill due to several limitations such as:
 Informal lenders often charge exorbitant interest rates, making it difficult for Penny and Bill to
repay the loan without significant financial strain.
 Informal lenders are not subject to the same regulations as banks and credit unions, which may
lead to problems with manipulation or collection harassment.
 Informal lenders typically only offer short-term, high-interest loans. This doesn't align with Penny
and Bill's long-term goals of homeownership and building savings.