Most people buy a home using savings, proceeds from a sale, and a bank loan.
Getting finance involves several steps and costs. It is important to understand your mortgage terms and seek legal advice where needed.
What is a mortgage?
When you borrow money from a bank to buy a home, the bank takes a mortgage over the property as security for the loan. The mortgage is usually registered on the property title.
If you default on repayments or breach other obligations, the bank can demand repayment. It may also sell the property to recover the debt and costs.
There are different types of mortgages, including:
- Variable rate mortgage: the interest rate changes over time.
- Fixed rate mortgage: the interest rate stays the same for a set period.
- Low-start or high-start mortgage: repayments begin lower or higher and adjust over time.
- Reverse equity mortgage: lenders advance funds to retirees and repayment is usually deferred until sale of the property.
Finding a home loan provider
Many lenders offer different rates, fees, and features. You should compare options to find a loan that suits your needs.
Key factors include:
- Interest rates
- Loan features
- Fees and charges
Comparison websites can help you review current rates. A mortgage broker can also assist you in finding suitable options.
Mortgage application process
Once you choose a lender, you can submit your application.
Lenders will review your credit history. If you have defaulted on past debts, the lender may reject your application.
It is important to provide accurate information. You should also include all required documents. Missing paperwork can delay approval or affect your purchase.
Loan guarantees
Some lenders require a third-party guarantee. This usually applies when the lender is concerned about repayment risk.
A guarantor is often a family member or close friend.
A guarantee can help secure a loan, but it creates significant legal responsibility. Guarantors should obtain independent legal advice before signing.
Consumer protection
Under the National Consumer Credit Protection Act 2009, lenders must provide clear and understandable information.
They must also disclose fees, charges, and your rights and obligations.
Key considerations
Buying a property is exciting, but securing the right loan can be complex. There are many lenders and loan products to compare.
Good advice helps you choose a loan that suits your financial situation.
If you or someone you know wants more information or needs help or advice, please contact us on (03) 9422 5439 or email [email protected].
Irvine Lawyers provide conveyancing and property law services across Melbourne. We have offices in South Morang and Warrnambool.