NAB Financial Products and Services 3 — Questions and Answers
Question 1: What is Lenders Mortgage Insurance (LMI) and when does NAB typically require it?
- Insurance that protects the borrower if they lose their job; required on all loans
- Insurance that protects the lender; typically required when the LVR exceeds 80% (Correct answer)
- Life insurance bundled with a home loan; required for loans over $500,000
- Insurance against property damage; required at settlement
Correct answer: Insurance that protects the lender; typically required when the LVR exceeds 80%
LMI protects the lender, not the borrower, and is generally required when the loan-to-value ratio (LVR) exceeds 80%, meaning the borrower has less than 20% deposit.
Question 2: How does a NAB mortgage offset account reduce the interest charged on a home loan?
- It earns bonus interest that is credited against loan repayments
- The balance in the offset account is subtracted from the loan balance when calculating interest (Correct answer)
- It allows extra repayments that permanently reduce the loan principal
- It converts variable interest to a fixed rate
Correct answer: The balance in the offset account is subtracted from the loan balance when calculating interest
An offset account balance is offset against the outstanding home loan balance, so interest is only charged on the difference, reducing the total interest paid.
Question 3: What is the difference between a NAB fixed-rate home loan and a variable-rate home loan?
- Fixed rates adjust with market conditions; variable rates stay constant
- Fixed rates are locked for a set period; variable rates move with market interest rates (Correct answer)
- Fixed rates apply to investment loans only; variable rates apply to owner-occupied loans
- Fixed-rate loans cannot be refinanced; variable-rate loans can always be refinanced freely
Correct answer: Fixed rates are locked for a set period; variable rates move with market interest rates
A fixed-rate loan locks in an interest rate for a specified period, while a variable-rate loan's rate moves in line with market conditions and RBA cash rate changes.
Question 4: What is a redraw facility on a NAB home loan?
- The ability to redraw the loan application documents at any time
- Access to any extra repayments made above the minimum required amount (Correct answer)
- A second mortgage facility attached to the primary loan
- The option to redraw the loan from a different lender
Correct answer: Access to any extra repayments made above the minimum required amount
A redraw facility allows borrowers to access any additional repayments they have made above the required minimum, providing financial flexibility.
Question 5: What does 'interest-only' mean in the context of a NAB home loan repayment structure?
- The borrower pays only the interest charged each period without reducing the principal (Correct answer)
- Only the first year of repayments is interest-based
- Interest is paid upfront as a lump sum at loan settlement
- The interest rate is fixed and the principal repayments are variable
Correct answer: The borrower pays only the interest charged each period without reducing the principal
During an interest-only period, the borrower's repayments cover only the interest charges and do not reduce the outstanding loan principal.
Question 6: Which factor does NAB primarily assess when determining a home loan applicant's borrowing capacity?
- The applicant's credit card limit only
- Income, existing debts, living expenses, and the ability to service the loan (Correct answer)
- The applicant's social media profile and spending habits
- Only the value of the property being purchased
Correct answer: Income, existing debts, living expenses, and the ability to service the loan
NAB assesses borrowing capacity using a comprehensive review of income, existing debts, living expenses, and the applicant's ability to meet loan repayments.
Question 7: What is a 'split loan' option that NAB offers to home loan customers?
- Splitting the loan between two different banks to reduce risk
- Dividing the loan into separate portions with different interest rate types (e.g., part fixed, part variable) (Correct answer)
- A loan shared equally between two borrowers with separate repayment schedules
- Splitting the loan repayments into weekly and monthly components
Correct answer: Dividing the loan into separate portions with different interest rate types (e.g., part fixed, part variable)
A split loan lets borrowers allocate portions of their home loan to different rate types, such as part fixed and part variable, balancing certainty and flexibility.
NAB Financial Products and Services 3
What is Lenders Mortgage Insurance (LMI) and when does NAB typically require it?