THE KEY STEPS IN HOME FINANCING

Apply to mortgagee/lender for loan approval

You may have to provide evidence of your income.

There are many different kinds of loan products available on the market and you should look around carefully before selecting the loan that is correct for you. Importantly, make sure you can make the repayments with ease, even if the interest rates move up 2% or 3% per annum. Of course, interest rates may increase even more than that! 

Obtain a loan approval

Usually lenders will provide you with a letter setting out the key terms of the loan. Read this document carefully to ensure the loan is what you want. 

Credit contract and mortgage

The mortgagee/lender or its lawyer will send you the credit contract and the mortgage.

The credit contract is the legal binding agreement which sets out the terms of the loan. This is usually the only legally binding document which sets out your obligations. You must read it carefully and ensure you understand all of it.

The mortgage document places a charge or encumbrance over your home and allows the mortgagee/lender to take possession of your home and sell it if you default. 

Guarantee

Sometimes there will also be a guarantee. A guarantor is someone who is not a borrower who has agreed to ensure all the repayments are made on the due date. Sometimes guarantors provide security (a mortgage over another house or a mortgage over some other asset). Generally, the mortgagee/lender can recover from the guarantor at the same time as they recover from the borrower. 

Signing documents

Some mortgagee/lenders will want you to obtain legal advice or financial advice or both in relation to some or all of the loan documents. You are now at the most important stage of the transaction. If there are any terms which you do not understand or do not reflect what you have agreed to, ask the mortgagee/lender. If still in doubt, ask for a written explanation. If still in doubt, you can contact your government consumer agency or seek independent legal advice, financial advice, or accounting advice.

Whatever you do, do not sign something you do not understand fully. If you have poor English skills, make sure you have the document translated. Most people, even many lawyers, have difficulty in understanding complex loan documents and mortgages. No one will think you are stupid because you ask questions. 

Send documents back

After signing the documents you send them back to the mortgagee/lender or the mortgagee/lender’s lawyer (depending who sent them to you).

Just before you send them back, check that you have signed at the bottom of each page and initialled all alterations. Make sure that where necessary your signature has been witnessed. If you are required to send any money or other information to the mortgagee/lender, make sure it is sent together with the documents. It will save time and money if you send all the requirements in a single package. If for some reason you cannot provide all the requirements, point out why when sending the documents back.

Things you may be required to do include the following:

• Have the name of your new mortgagee/lender noted on your house insurance policy.
• Provide evidence of payment of council and water rates.

If you are financing a purchase your mortgagee/lender may have other requirements including the provision of:

• survey
• zoning certificate
• other government enquiries.

You will usually obtain these requirements as a result of your purchase. 

Your existing mortgagee/lender

If you are refinancing (ie paying out an existing loan by borrowing new money), you will need to obtain a payout figure from your existing mortgagee/lender and have your existing mortgagee/lender prepare a discharge of mortgage. Find out whether you need to arrange this or whether the new mortgagee/lender will arrange this.

Your existing mortgagee/lender may require a specific discharge authority form signed before they will take any action. If you want the refinance to proceed quickly, you will need to follow up your existing mortgagee/lender to ensure you get a payout figure and a time for settlement promptly. 

Settlement

The date on which the new loan is made is called settlement. If you are refinancing an existing loan, settlement will usually occur at the offices of your old mortgagee/lender or their lawyer. If you are buying a property, settlement will occur at the offices of the vendor’s (ie. the seller(s)) mortgagee/lender or their lawyer.

The new mortgagee/lender turns up with the money and hands it over to the old mortgagee/lender or the seller as the case may be. The new mortgagee/lender takes away your title deeds, registers a mortgage on the title and keeps the documents in safe custody.

If you are acting for yourself on a financing, ask whether you need to attend. If it is a refinance, your new mortgagee/lender may be prepared to handle the paperwork for you. If you are acting for yourself on a purchase, you most certainly will need to attend.

Remember, when you are buying a house, the time for settlement flows naturally from the sale contract. On refinances, however, unless you push things along, the refinance can drag on for months. 

After settlement

Make sure that any old payment authorities in relation to old loans are cancelled. The old loan has been repaid and so no further payments should be made. Your new payment authority will commence at a specified time after settlement.