Buying a home is not easy – there are so many steps and checks involved from choosing the right property to choosing the right lender to getting pre-settlement inspections done. More and more people are thus relying on mortgage brokers to guide them through the financing process, often overlooking the fine print once the mortgage is settled.
While brokers definitely make the process whole lot simpler, whether you apply for a loan directly or not, closely examining your home loan contract can prevent many nasty surprises in the future. Of course, you must have an expert read the contract legally, but here are few things you must check for yourself to make an educated decision whether to sign the contract or not.
1. The lender – Your home loan is a big financial liability you’d be servicing for a long time to come. But have you verified who you are dealing with? It is important to verify the details of the lender and check whether they hold a valid license issued by Australian Securities and Investments Commission (ASIC). Check ASIC Connect’s Professional Registers to be sure.
2. The numbers – You know how much you are borrowing and how much you’d repay, but does it conform to what’s on paper? While taking a home loan, numbers are of utmost importance. Scan the contract thoroughly and check if the total amount of loan is the same as what you think it is. While there, also check the interest payments and the total amount you’d be repaying over the life of the loan.
3. Interest Rate – In case you have landed that perfect mortgage deal, do remember to double check the interest rate on the contract and confirm whether it is variable or fixed. The interest rate is the most important factor in your home loan and it is best to be ‘sure’ than sorry.
With interest rates soaring low, the time is ripe for prospective home buyers to borrow and venture into the property market. Compare broker pre-negotiated home loan deals on HashChing for the most competitive rates in the market.
4. The life of the loan – When you sign up for a 30-year loan term, you don’t want to be forced to pay it up in 20 years or vice versa. Any mistake in the loan term can cost you dearly in terms of higher interest payments (if the term is longer than promised) or increased repayments (if the term is shorter than promised). Thus, it is only prudent to double-check the loan term before you sign the dotted line.
Of course, you can pay off the loan faster if you like. But do you have the essential features you need in a loan? What is the frequency of payments you are signing up for and can you make additional repayments and make redraws for no extra fee if required?
5. Early or late repayments – When you take a home loan, it must be your endeavour to make your repayments on time, every time. However, if you get lucky with a pay hike or a windfall gain, you may decide to repay the loan faster and own your home sooner than anticipated. It is important to check the fee section of the contract to know the applicable charges for paying the loan off early or even restructuring it. Similarly, a certain fee will be levied in case you delay in making the repayments. It is important to understand how the lender will notify you in the case of default and what penalties would apply (such as increased interest rate), as this is one area where lenders can make money.
6. Insurance – While applying for a home loan, there are few kinds of insurances you must be aware of. In case you have a low deposit, a lender may let you borrow up to 90% of the property’s value if you provide a guarantee or agree to pay Lenders Mortgage Insurance (LMI). LMI protects lenders in case the borrowers default on repayments. Lenders also require borrowers to take out Home and Contents Insurance to protect the mortgaged property against damage or theft.
Borrowers may also consider taking Mortgage Protection Insurance, which is not mandatory but covers some of the repayments in case of illness or injury.
A home loan is a huge financial commitment and small errors can cost you an arm and leg when it comes to repaying the loan. Read the contract thoroughly before signing the dotted line and in case you come across provisions you aren’t happy with, feel free to discuss with the lender and ask for changes. Remember, as the mortgage market turns more competitive, there are several lenders competing for new customers and is it better to turn away from a loan that doesn’t meet your expectations than regret later. Get in touch with mortgage brokers at HashChing to find answers to all your home loan queries, free of cost.
By Vidhu Bajaj