After formal approval, the lender issues loan documents for you to sign. The pack can run to well over a hundred pages once the general terms booklet is included. Most borrowers sign where the sticky flags tell them to and read nothing. The documents are standard form, but the schedule is specific to you, and that is where mistakes appear.
You do not need to read every page with equal care. The schedule and financial table deserve a line by line check. The general terms need a targeted read of about ten clauses. This guide shows you which ones and what to ask. It is general information, and a solicitor can advise you on your own contract.
What documents arrive in a home loan pack
Names vary between lenders, but the pack has the same core parts. The loan offer becomes the loan contract once you sign and return it, and it is read together with a general terms and conditions booklet. If you applied after a pre-approval, the offer, not the pre-approval letter, sets the final terms.
| Document | What it does |
|---|---|
| Loan offer or loan contract | Your specific terms: amount, rate, repayments, fees, security and special conditions. Includes the financial table. |
| General terms and conditions | Standard clauses for all borrowers: how interest is charged, rate changes, default and enforcement. |
| Mortgage | The security document registered on the property title. It usually refers to a memorandum of common provisions filed at the land registry. |
| Information statement | A prescribed summary of your rights under the National Credit Code, headed as things you should know about your proposed credit contract. |
| Credit guide and other disclosures | The lender's licence and complaints details. A broker also gives a credit guide and a credit proposal disclosure showing commissions. |
| Supporting forms | Direct debit request, borrower declarations, insurance requirements and any guarantee documents. |
The National Credit Code generally covers loans to individuals for personal use or residential investment. Loans to companies and most business purpose loans sit outside it.
The financial table: the most important page
The National Credit Code requires lenders to give you a precontractual statement with the key financial information set out in a table at the front. In practice the loan offer doubles as that statement. The Code lists what the contract document must contain, and the table is where most of it appears. Check every line against your written quote.
| Item in the table | What to check |
|---|---|
| Amount of credit | Matches what you need to settle. Shows whether lenders mortgage insurance or fees have been added to the loan. |
| Annual percentage rate | The interest rate. Check the rate, fixed or variable, any discount, and the rate that applies after a fixed or introductory period. |
| Repayments | Amount, frequency, number of repayments and how the first repayment date is set. |
| Total interest | Shown where it can be calculated. Only an estimate on a variable loan. |
| Credit fees and charges | Every fee known at the time, with amounts, and a total where it can be worked out. |
| Other disclosures | Default rate, enforcement expenses, the security taken, commissions and how often you receive statements. |
In a loan contract the annual percentage rate means the interest rate only. It does not include fees and is not the advertised comparison rate.
Checklist part 1: interest rate, repayments and fees
Interest rate type and how it can change
On a variable loan the general terms let the lender change the rate at any time, not only when the Reserve Bank moves. Under the Code, the lender generally must notify you of a rate change no later than the day it takes effect. If your rate is a reference rate less a discount, check the discount applies for the life of the loan. On a fixed loan, check the fixed term, whether the rate is locked or set on settlement day, and the revert rate.
Repayment type and interest only expiry
Check whether repayments are principal and interest or interest only, and the date the interest only period ends. On $600,000 at an illustrative 6.20%, interest only repayments are $3,100 a month. After a five year interest only period on a 30 year term, the debt is repaid over the remaining 25 years and repayments rise to about $3,939 a month, an increase of about $839 or 27%.
Fees
- Establishment, valuation, settlement and legal fees payable at or before settlement.
- Monthly, annual or package fees, and whether they are deducted from the loan proceeds.
- Discharge fees, break costs on fixed rates, and the cap on extra repayments. See refinancing costs and fees.
- New or increased fees. The Code generally requires at least 20 days notice.
Checklist part 2: offset, redraw and default clauses
If you were promised an offset account, the offer should name it and say which loan account it is linked to. Check whether the offset is 100% or partial. Redraw is a contractual feature, not a right. The terms usually let the lender set minimum amounts, charge a fee, limit redraw on fixed loans, or change or suspend the facility.
Default clauses list the events that put you in default. Missing a repayment is the obvious one. Others commonly include giving incorrect information in your application, failing to insure the property, and bankruptcy. The default interest rate is usually a margin above your normal rate, charged on overdue amounts.
For loans under the Code, the lender must generally give you a default notice and at least 30 days to fix the default before it can demand the full balance or begin enforcement. The contract also lets the lender recover reasonable enforcement expenses. You can ask for a hardship variation if you cannot meet repayments.
Checklist part 3: all moneys clauses, cross collateralisation and guarantors
Most home loan mortgages are all moneys mortgages. The mortgage secures not only this loan but all amounts you owe that lender now or later, which can include other loans, credit cards and overdrafts. When you sell or refinance, the lender may be able to hold the title until other debts with it are dealt with.
Cross collateralisation is where one loan is secured by two or more properties, or a property secures several loans. Check the security section of the offer. If it lists a property you did not expect, such as your home as security for an investment loan, ask why. Crossed securities make it harder to sell one property or move one loan without the lender reassessing everything.
If a guarantor is involved, check whether the guarantee is limited to a dollar amount or covers the whole debt, what security the guarantor gives, and the conditions for release. Lenders generally require guarantors to obtain, or formally decline, independent legal advice before signing, and a guarantor should always take it.
Checklist part 4: conditions, offer expiry, settlement and first repayment
An approval is not the same as funds being available. The offer lists conditions precedent, which must be met before the lender will advance the money. If a condition is not met by settlement, the lender can refuse to fund and you remain bound to the purchase contract.
- Signed documents returned with no errors, and identification completed for every borrower and guarantor.
- Building insurance in place for the amount the lender requires, noting the lender as mortgagee.
- Your funds to complete available, and any outstanding items from the documents needed for a loan.
- No material change in your income or debts before settlement.
Find the offer expiry date. Lenders set a period to accept the offer, and a separate period to settle, after which the approval lapses or must be reassessed. Check both against your contract of sale. The first repayment is commonly due one month after settlement, or sooner for weekly or fortnightly repayments. See the property settlement process for the timeline.
Your solicitor, questions to ask, and what you can change after signing
Your solicitor or conveyancer acts for you on the purchase, not the loan. They book settlement with the lender, check title and tell you how much you must contribute. Reviewing loan documents is often outside their standard fee, so ask for it if you want it. Independent legal advice is commonly compulsory for guarantors, and often for trust, company and self managed super fund borrowers.
Questions to ask before signing
- Is the rate in the offer the rate I will get at settlement?
- Which fees are deducted from the loan proceeds, and how much will reach settlement?
- Exactly which properties secure this loan, and does the mortgage secure any other debts?
- What happens, and what does it cost, if settlement is delayed past the expiry date?
Before you sign
Everything can be corrected or renegotiated. Errors in names, rates, splits, repayment type and linked accounts are fixed by the lender reissuing documents. Reissue can take several days, so raise problems as early as you can if settlement is close.
After signing, before settlement
Under the Code you can generally end the contract in writing before any credit is provided, although you still owe fees already incurred. Changes to the loan amount, splits or rate type usually need new documents and may delay settlement.
After settlement
You can still switch between variable and fixed, change repayment frequency, restructure splits and ask for a rate review. Lender consent and fees may apply. Fixed rates carry break costs, and removing a security or guarantor needs a fresh assessment.
Common mistakes when signing a home loan contract
These errors are common, and each one is easier to fix before you sign.
Signing without checking the financial table
Borrowers assume the documents match the approval. Wrong rates, missing discounts, the wrong repayment type and splits in the wrong amounts all occur. Once you sign, the contract is the record of what you agreed to.
Tick each line of the table against your written quote.
Missing the offer expiry date
Documents sit unsigned while you wait for a builder, a solicitor or a co-borrower. If the offer lapses, the lender may need updated payslips and a fresh assessment, and rates or policy may have changed in the meantime.
Diarise the acceptance and settlement deadlines the day documents arrive.
Not noticing which properties are security
Investors often discover years later that their home was taken as security for an investment loan. Selling or refinancing one property then needs the lender's consent on the whole structure, often with new valuations and delays.
Read the security section and question any property you did not offer.
Leaving insurance and conditions to the last day
Settlement can be delayed because building insurance was not arranged, or because a condition in the offer was never satisfied. A delay caused by the buyer can trigger penalty interest under the contract of sale.
List every condition and confirm each one a week before settlement.
