Alan Hartstein
Athena Cocoves
Before signing on the dotted line, it’s essential to understand every detail in your home loan contract. This list of questions to ask your mortgage lender can help you navigate the paperwork and clarify costs, preparing you for what lies ahead.
QUESTIONS TO ASK
- 1. How much can I borrow, and what deposit will I need?
- 2. What extra costs will I pay?
- 3. Can you waive any of those fees?
- 4. What documentation do you require for approval?
- 5. Can you give me a better interest rate?
- 6. How much will my monthly repayments be?
- 7. Do you have any promotions or incentives?
- 8. Do you recommend I add any special features?
- 9. Do you offer home and contents insurance?
- 10. Can I pay off my mortgage early?
1. How much can I borrow, and what deposit will I need?
Before you start looking, you’ll need to ascertain how much you can afford to borrow. That way, you won’t waste time on properties out of your price range. You can also use a borrowing capacity calculator — a common feature on most lenders’ websites, but also available on Moneysmart — to get a rough idea of the amount.
Once your bank or prospective lender has given you a more detailed amount, you can easily calculate the deposit, usually 20% of the property’s value but sometimes less. If you think you’ll struggle with that amount, discuss alternatives with the lender, such as getting a family member to go guarantor on the loan.
» MORE: How to increase your borrowing capacity
2. What extra costs will I pay?
An obvious question you’ll want answered is what added charges apply to the mortgage you’re applying for. Your lender should be able to give you a comprehensive breakdown of the costs of buying a house — especially those that apply to the mortgage.
Those extra charges could include:
- application fees
- property valuation fees
- building and pest inspection fees
- lenders mortgage insurance
- title insurance
- establishment fees, including mortgage registration fees
- annual or monthly account fees
- stamp duty
- conveyancing fees
- switching fees if moving from a fixed to a variable rate
- mortgage portability fees
- late payment fees
- discharge fees
- early repayment or exit fees.
🤓 Nerdy Tip
Some homebuying costs — such as stamp duty and conveyancing fees — will not be payable to the lender. Ask your conveyancer to estimate those amounts for your circumstances.
3. Can you waive any of those fees?
It doesn’t hurt to ask about fees again to ensure there aren’t any hidden costs you haven’t planned to budget. While the above list is fairly comprehensive, you should check that your mortgage contains as few as possible. That way, you’re less likely to get any nasty surprises and can plan your finances accordingly.
Also, given the highly competitive nature of the mortgage market, you should request that your lender waive some fees, such as annual account keeping. Your lender may be willing to do this if they want your business.
» MORE: How to avoid mortgage stress
4. What documentation do you require for approval?
Before you apply for a home loan, you can usually find information about what you’ll need on the lender’s website. However, it may also be worth contacting them to be precise about the types of documents they expect to see. That way, you know exactly what they require to expedite the whole process.
For example, if they require proof of employment along with your past few payslips, you can arrange to get this information from your workplace personnel department and have them transfer it to the lender.
» MORE: What to know about low doc home loans
5. Can you give me a better interest rate?
Lenders advertise their interest rates but you or your mortgage broker, if you have one, can always negotiate a better one. There’s no harm in asking, and your lender may be willing to match a competitor’s rate, even for an introductory period. Even a small reduction could save thousands of dollars in the long run.
» MORE: What is a comparison rate?
6. How much will my monthly repayments be?
You’ll want to know how much your monthly repayments will be, especially the amounts that go to interest and principal. Your lender will give you a definitive amount so you can plan accordingly.
If you struggle to make your repayments at any point during the mortgage, they should also be able to devise a suitable plan to get back on track.
» MORE: What percentage of your income should your mortgage be?
7. Do you have any promotions or incentives?
Some lenders offer sign-on promotions, such as cash or rewards points incentives, to first-time buyers and mortgagees who are refinancing.
Just be wary of lenders advertising overly generous promotions, because there are usually fees and charges involved. Over the entire term of your mortgage, those extra costs may outweigh any benefits of those upfront perks.
Your lender should also inform you of any first-home buyer schemes and government initiatives you may be eligible for.
» MORE: How to pay off your mortgage faster
8. Do you recommend I add any special features?
The most common added features of mortgages include
All have their pros and cons and will depend on how you want to manage your finances.
Ask your mortgage broker for pointers on which one will suit you best. Then, your lender can explain their products’ specific features and associated terms and conditions.
» MORE: Innovative home loan features to consider for your mortgage
9. Do you offer home and contents insurance?
Most lenders in Australia require mortgagees to take out home and contents insurance in case of a fire or some other catastrophe. Many also offer insurance products themselves, which makes taking out the appropriate policy easier and less time-consuming.
Ask your lender what they offer and how this can be incorporated into your total mortgage package.
» MORE: Is it worth paying for mortgage protection insurance?
10. Can I pay off my mortgage early?
If you plan to pay off your mortgage early or think you may want to switch lenders, make sure to ask about any early exit rules and fees.
Your lender should have already told you about early exit fees, especially if you’ve asked about extra costs. Still, once again, you should make sure that you’re not going to be hit with hidden charges.
About the Author
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