The Law Handbook 2024

Chapter 6.2: Buying or selling a house 547 seek legal and financial advice before entering into a reverse mortgage (see Chapter 2.4: Legal services that can help, and Chapter 5.4: Financial counselling services). Lenders Legislation governing lenders Home loan mortgages and guarantees are covered by the National Consumer Credit Protection Act 2009 (Cth). For more information about national credit laws, see ‘Consumer protections under Australian Credit Law’ in Chapter 5.7: Understanding credit and finance. The different lenders Lenders include banks, mortgage brokers, credit unions, finance companies and solicitors’ trust funds. Banks Banks usually lend up to 80 per cent (and more, if the borrower pays for lender’s mortgage insurance, if required) of the bank’s valuation of the property. Mortgage brokers Mortgage brokers are not lenders but they consider your situation and recommend a lender. You do not pay a broker to do this as they are paid a commission by the bank you take out a loan with. Credit unions Credit unions provide home loans to their members at competitive rates. Finance companies Finance companies lend first and second mortgages. A borrower pays a higher interest rate and the loan period is shorter than for home loans from banks. Solicitors’ trust funds Very rarely, solicitors’ trust funds are available from some specialist law firms. They are usually available on a short, fixed term at fixed interest, and require only payments of interest for the loan period. The capital must be repaid at the end of the loan or the loan must be renewed. Borrowers must pay their own and the lender’s solicitor’s costs, as well as a valuation fee. Lenders and settlement The lender attends the settlement of the contract (which usually occurs via an electronic conveyancing platform; however, there are a small number of complex transactions that cannot be settled electronically) and uploads the loan money into the electronic workspace. That money, and any funds contributed directly by the buyer, is used to pay the vendor, as well as all the expenses of the loan, any mortgage loan insurance premium, stamp duty, any expenses involved in clearing the vendor’s title, the lender’s solicitor’s fees, and the registration fees on the transfer and mortgage. The stamp duty is paid automatically to the State Revenue Office at settlement. The discharge of mortgage and transfer of title are generally registered automatically with Land Use Victoria. The sale proceeds are also transferred to the vendor’s account and/or used to pay off the mortgage. Consumer protection A mortgage contract is contained in the loan terms and conditions document, the registered mortgage and a memorandum of common provisions, which is a complex document. Mortgages give lenders extensive powers when borrowers default. Be careful to note all the requirements about payments. Early repayment : Most mortgages entitle the lender to charge the borrower a fee if a loan is repaid early. Lender’s mortgage insurance : This insurance protects the lender from loss if the borrower defaults on the loan and the sale of the property returns less than the amount needed to repay the loan and all the lender’s expenses. Lender’s mortgage insurance does not protect borrowers, but it assists people who have very little money to buy a home and eliminates the need for a second mortgage or a large deposit. If a loan is over 80 per cent of the value of the property, the lender usually requires the borrower to take out lender’s mortgage insurance (unless the borrower is taking advantage of a government scheme whereby the government covers the cost of the lender’s mortgage insurance). A borrower can obtain personal mortgage insurance from an insurance broker, which protects the borrower by paying the instalments if they lose their income. The Equal Opportunity Act 2010 (Vic) covers banking and credit. Lenders are not allowed to use a person’s sex or marital status as reasons for refusing or reducing a loan. For more information, see Chapter 11.1: Discrimination and human rights.