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The Importance of READING your Loan Docs!

Ever wondered what you’re meant to do with the massive pack of documents you receive from the banks at the end of the home loan process??

Pro tip: read them!!

The documents are standardized for the most part, and only a few things change from person to person. No matter if it’s your first or one hundred and first loan, it’s always a good idea to read through the whole thing.  And if you don’t understand something, ask your broker!!

The banks can make mistakes on the documents.  Most of the time your broker won’t even see the loan documents before you get them.  They’re sent directly to you from the bank or bank’s legal team, so usually no one has checked them to see if they’re correct before you receive them.

The key things to check are:

  • Rates
  • Loan term
  • Discount rate
  • Fixed period
  • Interest only term (if applicable)

Rates

For most loans, the rate won’t be set in stone until the day of settlement.  However, if you’ve arranged for a special discount this “discount rate” is locked in.  If the standard rate is 5.8% pa and you have a discount rate of 1.3%, your rate would be 4.5%.  If the standard rate moves to 6% before settlement, your new rate would be 4.7%, so the discount rate is VERY important.

Each loan split, if you have them, (either fixed/variable splits, or different loan accounts to split the loan between you and your partner) will have a separate agreement within the documents.  Make sure to check all loan splits for correct rates and loan terms.

Loan Term

This one is something else that can do some serious damage down the track, if it’s missed. The most common loan term is 30 years, so if you make the minimum payments, your loan will be paid off in 30 years. The loan term in the loan docs is typically shown in months, so for a 30 year term it will show as 360 monthly payments, or for 25 years it will say 300 monthly payments.

If you get this wrong, you’ll end up with much higher monthly repayments, and when you aren’t expecting it… it hurts!  Eg:

  • Loan of $450,000 at 4.5% pa
  • Repayment 30 years = $2,280
  • Repayment 25 years = $2,501
  • Repayment 20 years = $2,846

 

Fixed/ Interest only period

If you’ve applied for a fixed loan, or split/s of your loan is/are fixed, it should be stated in your loan docs.  Your original fixed rate and the new variable rate will both be displayed.  And again, if you had negotiated a discount, make sure the discount rates are correct for both periods. And remember to check that the number of months matches the fixed term … 3 year fixed rate is 36 months!

If you applied for an interest only loan, (usually only investment properties) make sure your interest only period is what you requested! Typically, they are run for 5 years periods (60 months) so make sure that it matches what you applied for. If you’re applying for a fixed loan, some funders match the interest only period to the fixed loan period, so this can also cause some headaches down the track for the unsuspecting!

Last pro-tip… Make sure the repayments are correct / what you expected! 

 

At the end of the day, buying a house will be one of the biggest financial decisions of your life, so you want to make sure the contracts associated with your mortgage are correct.

It’s easy to have mistakes amended before you sign, rather than after!  If you notice a mistake after settlement and try then and fix it, it will be much harder, if it’s possible at all.

If you don’t check, you might end up paying extra every month and you’ll end up kicking yourself!

 

If you have any questions, please feel free to contact me!!

adam@how-strategygroup.com.au

Phone – Direct 8922 9757

Adam Wilson

Loan Writer, HOW – Home Loans