Banking · Risk Management and Retail Lending
An individual with a high net worth but volatile income from a startup venture seeks a mortgage. The advisor notices that while the current cash flows are high, the debt-to-income ratio would exceed 60% if the interest rates rise by a mere 200 basis points. Evaluate the most ethically and legally sound advice according to standard prudent lending practices.
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Recommend the borrower take a personal loan to cover the down payment and show a lower LTV ratio to the bank.
- 2Conduct a Stress Test on the borrower's income and recommend a lower loan amount or a longer tenure to ensure the EMI remains manageable under adverse rate scenarios.✓
- 3Advise the borrower to choose a Step-Up repayment plan where EMIs are lower initially.
- 4Approve the maximum limit because the high net worth provides enough collateral security regardless of income stability.
Correct answer
Conduct a Stress Test on the borrower's income and recommend a lower loan amount or a longer tenure to ensure the EMI remains manageable under adverse rate scenarios.
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