By Alban Smith
You may not be signing your life away when you sign the mortgage on your home, but you are certainly signing away a large portion of it. That is why it is so important to know exactly what you are signing, and be aware of the common pitfalls and obtusely misleading clauses and conditions of mortgage documents before you sign.
When you are signing your mortgage, there are five main things you should look out for in the process and in the documentation, including:
1 The approvals process
When you are signing your mortgage documents, find out how long the process takes from the time your application is submitted, to the time it is approved. This is important to know if you have already placed an offer on a property or block of land that you want to buy, as you can lose the property if your finance doesn’t come through in time. Therefore, make sure you are clear about how long the process is expected to take.
Also, to protect yourself if you change your mind about the loan or the property, find out about any cooling off periods in the mortgage contract. You may have a certain number of days in which you can change your mind, without incurring penalty fees.
2 Penalty fees
At the time of singing your mortgage it is important you understand all of the fees and charges which could be applied to your mortgage account. Firstly find out whether there are any penalties for early repayment of the mortgage, for example if you make additional repayments, or receive a lump sum amount and your mortgage is paid off sooner than the full term, some lenders will charge you early exit fees.
Also find out about charges for additional fees such as insurance, as there may be a tie in clause which states you must purchase the insurance from a specific company, so you can be paying more than if you had been able to shop around yourself.
You also don’t have to accept all of the fees which your lender is charging, and make sure you understand exactly what each one is for. Some lenders will hide a number of additional fees and charges in the closing cost fees, and make sure you get a copy of this statement, and match it to the amount you are then required to pay when the loan settles.
3 Interest rate
Even though you spend a lot of time shopping around and comparing rates and fees, when it comes time to sign the mortgage documents, you may forget to correlate that research with the loan you’re actually getting. Therefore, make sure you ask exactly what the interest rate will be, as many home loan interest rates are variable, and the rate may have changed from the time you researched the loan to the time you signed the documents.
Also make sure you understand the type of interest rate you are getting, whether it is a fixed or variable rate. There will be clauses in the mortgage document which will explain the circumstances of an interest rate adjustment on your mortgage, or you may have been sold on a low interest rate, but that interest rate only applies for one to two years, after which you are charged a much higher rate.
4 Sale of your loan
When you are thinking about your home and your home loan, the only sale which will come to mind is if you decide to upgrade or change locations down the track, and sell the property. However, you should also make sure you find out about whether your mortgage can be resold by your lender.
While the sale may never eventuate because market circumstances never require it, it is important to know whether your loan is eligible to be sold in a secondary market. Your choice of mortgage will have been based on the product as well as the lender, and if your loan is going to be sold to another lender after you’ve signed, then this is an important consideration. At the time of signing, you may be able to find out who your loan is likely to be sold to, if your lender does decide to sell in the future.
5 Your agreement
There is a portion of your mortgage documentation called the Acknowledgment and Agreement section. This section of the mortgage states that the information in the application is true and correct, and you are then required to sign and date the agreement.
If your income or any other information doesn’t match what is in the mortgage document, your lender could be committing mortgage fraud. However, it is you who would be responsible for providing the inaccurate information once you have signed the agreement. Plus, the lender may not even purposely provide misinformation, but an error could be the result of an admin or computer misinterpretation.
Therefore, make sure you review the details in your mortgage document closely, to make sure they really are true and correct, and reflect the information you provided to your lender.