When planning to buy a home, it’s always advisable to apply for a mortgage. Mortgages loan contracts are agreements entered between the lenders and homebuyers stipulating the terms of the contract signed. Many of us do not take time to go through the contracts terms in details before signing and closing the deal. The due diligence work is left to the solicitor or brokers and sometimes they tend to overlook some of the contract terms which end up haunting you back.
A basic loan contract should contained crucial general information highlighting the nature of the contract entered into. It should include;
- Clearly stated loan terms and conditions.
- The amount you are planning to borrow including the annual percentage rates.
- It should also outline what are your monthly, fortnightly or weekly payments amounts.
- The timeline (either 25 or 30 years) in which you are expected to have completed paying off the loan.
It is very important for every borrower to close examine in details the list of applicable fees under certain circumstances. This is one area where lenders make a killing! You should ensure that there is clear understanding about the pre-determined loan processing fees. Ensure that you check also the terms governing the fees charged for the use of payments and the redraw methods to be applied.
Once you are satisfied that you have read and understood the loan contract agreement, you are supposed to sign the document and return it to the solicitor within a period of 21 days. Ensure that you have engaged a qualified professional who will serve you with diligent and at a fair cost depending on the estate that you are in.
In case you are not satisfied by the stated terms and conditions; you can consider negotiating with the lender for better terms. The lending market is a competitive market and should ensure that you negotiate before signing all the necessary documents.
Sections of a contract
- Terms and conditions booklet-
These are the introductory pages stating the terms and conditions governing your contract document. The main components of this section outline the major clauses that may apply to your mortgage, your responsibility towards servicing the loan, how the interest is calculated as well as the lender’s responsibility to you as the borrower.
- Letter of offer-
This section comprises of the actual contract and you are able to get your full individual mortgage agreement. You should read this together with the terms and conditions booklet so as to have a better understanding of the proposed agreement contract. The Uniform Consumer Credit Code protects the home buyers by outlining the details that must be included in the loan contract.
You are then provided with full details of your credit provider so that you can know your lender. The next step involves;
The borrower-All about you
Under this section, you are required to verify all your details in the loan contract are correct. Ensure that all your names, addresses, and details of other borrowers are stated correctly failure to which your contract will become null and void.
Disclosure and offer lapse dates-
The disclosure date in your mortgage contract indicates the date by which the mortgage contract was issued to you as the borrower. On the other hand, the offer lapse date stipulates the period signed by the lender in which the offer must be signed by the borrower and returned.
- Financial table-
The financial table section outlines the fiscal details including the proposed fees and charges. The amount can be changed by the lender by notice to the borrower any time but within 30days notice.
- Amount of credit-
This is where you confirm the home loan amount by counterchecking with the previously agreed one. Other important bits to check include the annual percentage rates and the repayment details.
- Purpose of the loan-
The section provides the borrower with the chance of confirming the reason why he has taken the loan. This may be for an owner occupied property, an investment property, or a personal investment.
- Commission-
It outlines whether or not the lender was connected to you via mortgage broker and if so, the lender is supposed to disclose the amount of commission the broker received.
- Credit-related Insurance cover-
In this section, you are to stipulate if you have opted to pay for any additional mortgage protection insurance. Such insurances will cover certain mortgage repayments periods in case you are not able to service the loan.
- Security-
Under this section, the security that you have opted to take the mortgage against must be stated clearly. In case you fail to repay the mortgage, this is what the lender will repossess.
- Disbursement instructions-
The disbursement instructions outline the person that is going to be paid the money of the final balance of the home property. It gives the details of who is going to be paid and when.
- Condition precedent-
Under this section, any outstanding element needs to be confirmed before loan is confirmed so that it can be settled. It can be; Guarantees to provide a certain document, Building a pest inspection or Fees and Charge.
- Special conditions-
This section explains in details the clauses that are very relevant to your loan contract as stipulated in the terms and conditions. When you are sure everything is okay, you can then sign the contract and take it back to the lender. By so doing, you will have officially and legally accepted the terms and conditions governing the home loan contract offer.