This is it. We are one step closer to securing your ‘next home’ with a mortgage, but not quite yet at the finish line.
Once your loan has been formally approved, loan documents will be issued, but you want to make to ensure all the information is accurate, and you truly understand the loan you are taking out.
Even though errors can be unavoidable, the earlier you can detect any issues with the documents, the faster it can be amended to avoid delays with settlement.
I will walk you through what to look out for BEFORE you sign on this important legal document.
What is a loan doc (or loan agreement)?
A loan agreement is the formal offer from the bank issuing you with a loan. Upon signing the agreement, you agree to the terms of the loan and give authority to the bank to process this loan.
In order to do this right, there are important things to look out for in each section of the loan agreement, including: Letter of Offer / Loan Agreement, Mortgage, Loan Account Authority & Direction to Pay, Direct Debit and Summary of Financial Position.
Letter of Offer
The letter of offer is the official loan contract between you and the lender, and is a binding agreement. You should first check to make sure your full name is accurate before proceeding to review the remainder of the document.
Once that has been checked, you can review the rest of the document which will contain the key details of your loan including:
The Loan Amount
From the time you had submitted the loan to getting an approval, it can take some time, and likely, there have been some changes in between. So, it’s important you don’t assume the information is accurate, and that you carefully check the loan amounts. The document will break down the loan structure if you have 2 or more loan splits.
The Interest Rate
Corresponding to each loan, you will see several rates presented. If you’ve ever been confused by this, don’t worry, you’re not the only one.
Standard Variable Rate (A), or Index Rate, is the benchmark rate that banks use to price other home loan products.
Interest Margin (B) is the discount which your Broker has negotiated, or your bank has pre-set as part of your home loan product.
Therefore, your interest rateis calculated by taking the standard variable rate MINUS the interest margin (or A minus B).
Based on your loan amount and interest rate, you will also be provided with your estimated repayments, so you will know the minimum monthly repayments, except if you have opted for Interest Only, as this can change month to month.
Fees and charges
The bank will present in detail, a list of potential fees and charges that will be applicable during the life of your loan. Some fees are mandatory as part of settlement, such as Government Fees, Annual Fees or any upfront fees paid to the bank to manage settlement. The other fees listed are generally only applied when you make a specific request to the bank, for example, if you are wanting to make a large same day transfer.
After reviewing the letter of offer, and you are still confused about the terms or explanations, you have a few options:
Reach out to your Broker. If you don’t have a Broker, you can contact the bank directly for them to assist, OR you can seek legal advice.
You’ll often see the Mortgage document – THIS is what gets lodged for registration with the appropriate government body in the state where you are purchasing your property.
The key to this document is ensuring your name and title reference of your property is accurate. On the mortgage you will not see reference to the property address because the unique identifier to your home is the title reference.
Title reference of your property can be found on the Contract of Sale or the valuation which gets completed.
Loan Account Authority & Direction to Pay
The Loan Account Authority is what helps you set out the right authorisation for the accounts. You can authorise someone else to handle your accounts in two ways:
- You can choose if one borrower or all borrowers’ signatures are required to make changes to the loan account.
- You can appoint a third party to help you with managing the loan account
Requirement of one borrower or all borrowers signature to make changes on the loan account
Appoint a third party who can help you with managing the loan account
More importantly on this document, which is relevant to the settlement of your home, is the ability to nominate an account for shortfall of funds. This is a key part to setting you up right for settlement.
The direct debit form gives you the opportunity to apply for a direct debit to repay the home loan. In our day to day, there is already so much to remember, so we would recommend you set this up PRIOR to settlement, so you’ll never be late on your home loan!
You’ll have the ability to choose how often you wish to make your repayments, and if you want to make any additional payments on top of your minimum monthly repayments.
Summary of Financial Position
In recent years, this has been a newly introduced document which summarises your financial position, and what you presented to the bank to achieve the loan.
The purpose of this document is to confirm that the bank has deemed the loan as ‘not unsuitable’, and that you have satisfied their requirements.
The information presented here should not come as a surprise, as your Trust Broker would have provided you a copy at the time of submission. However, if you notice any incorrect information, then this should be raised and rectified before proceeding.
So, this is the summary and explanation of the key features which you will see on your loan documents. Hope you enjoyed this video, and remember, you can always ask for help to ensure you have set yourself up right on the loan at settlement.
Speak to a Broker
We hope this has been helpful to you. If you have any questions or comments on this topic, you are more than welcome to get in touch with our broking team.
For more tips on getting your next home, please stay tuned or head to our Youtube channel – “The Next Home Series“