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
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
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
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.
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
Send documents back
After signing the documents you send them back to the mortgagee/lender or the
mortgagee/lenderís 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
- 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:
- 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.
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 vendorís (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.
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