NAB Lending and Credit 4 — Questions and Answers
Question 1: Under responsible lending obligations, what must NAB determine before approving a credit application?
- That the applicant has no existing debts with any other lender
- That the applicant has held their current job for a minimum of two years
- That the credit product is not unsuitable for the applicant's needs and financial situation (Correct answer)
- That the applicant's intended property is located in an approved postcode
Correct answer: That the credit product is not unsuitable for the applicant's needs and financial situation
Responsible lending laws require NAB to ensure any credit product is not unsuitable for the customer's stated needs, objectives, and financial circumstances.
Question 2: What does a 'comparison rate' in NAB's loan advertising represent?
- The interest rate benchmarked against the RBA cash rate
- A rate comparing fixed-rate and variable-rate loan options side by side
- The true cost of the loan incorporating most fees and charges into a single annual rate (Correct answer)
- The average interest rate across all NAB lending products in the current period
Correct answer: The true cost of the loan incorporating most fees and charges into a single annual rate
A comparison rate combines the stated interest rate with most associated fees and charges to give a more accurate representation of a loan's true annual cost.
Question 3: How does an offset account reduce the interest charged on a NAB home loan?
- Interest earned in the offset is automatically credited to the loan principal monthly
- The offset account balance is subtracted from the loan principal when calculating interest (Correct answer)
- Holding funds in the offset locks in a lower fixed rate for the loan's remaining term
- It prevents additional fees from being applied to the outstanding loan balance
Correct answer: The offset account balance is subtracted from the loan principal when calculating interest
An offset account reduces interest charges because NAB calculates interest only on the loan balance minus the offset account balance.
Question 4: What does an 'interest-only' repayment period on a NAB home loan mean for the borrower?
- The borrower pays a reduced introductory rate during the promotional period only
- The loan principal is fully forgiven at the conclusion of the interest-only term
- Repayments cover only the interest charge; the principal balance does not reduce (Correct answer)
- Interest is charged at a lower rate in exchange for committing to higher future repayments
Correct answer: Repayments cover only the interest charge; the principal balance does not reduce
During an interest-only period, the borrower's repayments service only the interest; the original loan principal remains unchanged until the period ends.
Question 5: What is a NAB construction loan primarily designed for?
- Refinancing an existing mortgage on a fully completed property
- Purchasing a brand-new completed house directly from a developer
- Major structural renovations to an existing investment property
- Financing the staged building of a new residential property with progressive fund drawdowns (Correct answer)
Correct answer: Financing the staged building of a new residential property with progressive fund drawdowns
A construction loan releases funds in stages as each building milestone is completed, rather than as a lump sum at settlement.
Question 6: How may a change in the RBA cash rate affect NAB's variable home loan interest rate?
- NAB is legally required to pass on any RBA rate change in full within 24 hours
- NAB may adjust its variable rate in response to RBA decisions but is not obligated to pass on changes in full (Correct answer)
- Variable rates are reviewed and set only once per year regardless of RBA announcements
- Variable rates are determined solely by international bond market movements, not the RBA cash rate
Correct answer: NAB may adjust its variable rate in response to RBA decisions but is not obligated to pass on changes in full
While RBA decisions influence NAB's variable rates, NAB sets its own rates based on funding costs, competition, and business decisions — it is not legally required to pass on changes in full.
Question 7: What is the purpose of a guarantor in a NAB home loan?
- The guarantor co-owns the property and shares equal repayment responsibility with the borrower
- The guarantor provides the deposit funds directly to the borrower as a gift
- A third party agrees to be liable for the loan repayments if the primary borrower defaults (Correct answer)
- The guarantor receives a proportional share of capital gains when the property is eventually sold
Correct answer: A third party agrees to be liable for the loan repayments if the primary borrower defaults
A guarantor provides NAB with additional security by agreeing to meet loan obligations if the primary borrower is unable to make repayments.
NAB Lending and Credit 4
Under responsible lending obligations, what must NAB determine before approving a credit application?