The ins and outs of applying for a mortgage

We asked two experts for their advice on the important things to consider when applying for a mortgage: William Johns, Senior Financial Planner and Managing Director for Health & Finance Integrated and Paul Drum, Head of Policy for CPA Australia.

Q: What are the mortgage agreement “red flags” buyers should look out for? Do some lenders or loan contracts try to “hide” fees or loan limitations?

A: William Johns:

• All credit providers and credit assistance providers must be licensed with ASIC or hold a current authorised representative licence from someone who is licensed. You can check this by running an ASIC Professional Register search.
• There are legislative things every credit provider or credit assistance provider must issue you with, such as a financial services and credit guide, and a credit contract.
• There are a number of important sections you would expect to find in a standard credit contract. Pay attention to ensure the borrower, lender and security details are correct.
• Fees and charges can be very steep, so make sure you understand how much you will be charged for dishonour fees, withdrawals, cheque fees etc.
• Occasionally property settlements are extended for whatever reason, so pay attention to the “offer lapse date” in the loan contract.
• If this is your first home and you wish to claim the First Home Owner Grant, you must organise it prior to having the contract written up.
• If the lender has made you an offer, such as waiving the establishment fee, ensure it is reflected in the contract.
• You should always ask your conveyancer or solicitor to go through your loan contract.

A: Paul Drum:

• Firstly, read the mortgage agreement and if you are uncertain about anything, ask questions. Write down the questions and the answers you receive.
• Specifically ask about the fees that apply to the loan, particularly the fees that may apply irregularly, such as fees for early repayment of the loan or redrawing on your loan.
• Make sure you feel comfortable in repaying the loan. Don’t just take the maximum amount that a lender will give you.
• Loan or repayment holidays and specials may look attractive upfront, but you need to look at the loan over its entire life. It may turn out that it is better to not take a loan holiday or “special” deal.

For a breakdown of costs, take a look at our guide to mortgage and lender fees.

Q: What are the key things that lenders look for when property buyers apply for a loan?

A: William Johns:

• The lender wants to see that you have the ability to pay your debt when it falls due. A clean credit history, stable employment history, and low personal debts such as low credit card limits are always attractive to the lender.
• The more you work on being a responsible borrower the more leverage you will have in securing a loan facility at competitive rates.
• If you are borrowing as a couple, you should talk to each other about your credit histories. A missed payment on your phone bill five years ago could tarnish your credit history, resulting in an unfavourable offer or a decline.

Q: How can buyers negotiate the best rate from a lender? What types of lenders, if any, are more likely to discount their rates?

A: Paul Drum:

As with anything, take the time to shop around and don’t be afraid to ask for a discount. You may be surprised to find that all lenders are willing to give you a discount to win your business. Alternatively, a mortgage broker can do a similar job for you. Research whether your super fund, professional body, employer or club may have special arrangements with a lender, and consider this to see if it is competitive.

A: William Johns:

If you fit the criteria of the “responsible borrower”, and you have done your homework, then everything is on the table when it comes negotiating a good deal. Banks and bank lenders usually have a margin they can discount based on what others are offering you. They can even seek special permission to offer you more discounts if you are borrowing a large amount or they feel they will lose the deal. Negotiation can also include bells and whistles the lender may throw in, such as waiving fees.