Finding and buying the first home of your dreams is an important and exciting milestone to tick off your bucket list! While it’s easy to get caught up in the buzz and excitement of it all, there are a few ‘formal’ things you need to consider as well.
One of these is making sure you understand the ins and outs of your home loan agreement. This important document can be fairly complex, especially for first time buyers. If you’re not aware of certain aspects and what they mean, you may find yourself legally responsible for something you weren’t prepared for.
To help, the home loan specialists at BOQ have created this guide to ensure you feel confident signing on the dotted line.
Security cover clause
The security cover clause is what lenders use as protection in the event that a borrower cannot repay the debt. In the majority of cases, this will be the property.
This means that if you fail to make your home loan repayments, the bank (lender) may use your security to cover the costs that you could not make. In some instances, this may mean repossession.
Lenders can often ask borrowers to provide additional security to safeguard the outstanding home loan amount. This is if they feel there is a risk due to a fall in house prices or deterioration of the property, for example.
Therefore, it’s important to confirm your security cover clause is stated correctly on your home loan contract before signing.
Fluctuating interest rate clause
In a home loan agreement, the interest clause is a crucial factor to be aware of as it details the interest rate of the loan. In many contracts, there are two types of interest rates:
- Fixed fee rates.
- Floating fee rates.
While a fixed fee rate is set for the agreed term, a floating fee rate gives the lender power to change the payable interest rate based on the market base rate. For example, if the benchmark market interest rises, banks are able to alter fixed interest rates as per these fluctuations. As such, fixed interest rates are often converted to floating fee rates.
Unfortunately, this type of interest rate is subject to amendment without the borrower’s consent. Therefore, as a borrower, you must carefully read through the home loan agreement to avoid future disputes and ensure the interest rate you negotiated is incorporated in the contract.
Signing on this clause gives the lender power to amend the loan agreement without consent from the borrower. This could involve changing the interest rate or modifying how early repayments of the loan are made. As such amendments could significantly impact the borrower, people must be extremely cautious before signing on the dotted line.
Borrowers should always request that their written consent is required before a lender attempts to alter any of the loan terms.
If you come into a windfall of cash, such as a work bonus, wouldn’t it be great if you could put this towards paying off your home loan a little earlier? This is what’s known as a prepayment of a home loan.
While some banks allow borrowers to make early repayments with no extra fees, other lenders demand a significant cost to do so. Therefore, before signing the final agreement, always check the small print to ensure you’re aware of the rules and regulations surrounding repayments.
Understanding the ins and outs of your home loan clauses will make sure you’re confident and aware of what to expect once your home loan agreement rolls out. If you’d like more advice on getting started with a new home loan, why not pop into your local BOQ branch and chat with one of our lending experts today?