September 25th, 2017
Your client has a preference for interest only repayments. What do you need to do to meet your compliance obligations?
Last week, we were treated to an article by Otto Dargan from Home Loan Experts about interest only loans. If you missed it, read it here. So what are your compliance obligations? What do you need to do to ensure an interest only loan is ‘not unsuitable’ and meets your client’s needs and objectives?
Here’s an outline of the best-practice compliance procedure for interest only loans in three easy steps!
Review all of the client’s stated needs and objectives to ensure an interest only repayment period is suitable. You should discuss these with your client and ask some questions:
What is the purpose of interest only repayments?
Is there an economic benefit to the client?
Are there any actions required by the client to implement their strategy?
Does the requested interest only period align with the purpose of the loan?
Does it conflict with other needs or objectives?
What is the exit strategy for the loan and in what timeframe?
In order to meet your Responsible Lending obligations under NCCP, you must ensure your client fully understands all the advantages and disadvantages of their choice of loan.
Advantages of interest only repayments include:
Disadvantages of interest only repayments include:
Carefully recording all of your discussions with your clients is necessary to meet your compliance obligations. All of these discussions and a record of the client’s decisions should be documented and saved as notes in Mercury so they can be easily retrieved if required. Again, compliance best-practice is to confirm all of your discussions in an email to the client and save a copy of that too.
If you follow these 3 easy steps you will ensure you are meeting your Responsible Lending obligations under NCCP and your client is making an informed decision. You can also be sure you are recommending a loan that fully meets their needs and requirements.
Contact the Compliance Team with any questions.
If you have any questions about providing interest-only loans, the Compliance Team will be happy to help. Get in touch by clicking your help icon in Mercury or simply email us directly at email@example.com