by Natasha Vogelmann
At the beginning of 1998, after much house hunting, my husband Piers and I finally had an offer accepted on an apartment in Sydney’s Summer Hill. We had already enlisted the services of a solicitor to do the conveyancing on a previous property on which we had been gazumped (i.e. someone put in a better offer after ours had been accepted – not a pleasant experience).
Despite our solicitor’s experience, it was entirely up to us to remind her to chase up any unresolved issues. In some cases we had to follow up on particular problems ourselves. This was especially due to the fact that the vendor took so long to settle and we became quite anxious. We felt this was what the solicitor had been hired to do.
By this stage we had visited a few banks to ascertain the amount we could borrow and the best interest rate available. We decided to borrow from Colonial State Bank for a number of reasons; the main one being the one year fixed interest rate of 4.97 percent – apparently the lowest in thirty years. The other reasons included the efficiency and friendliness of the staff at our local Brookvale branch, which was either due to luck, superior training or a combination of both.
We soon found out the process of establishing a mortgage is an expensive and complicated process, with many conditions that have to be met. This seems especially true if one is borrowing for the first time and doesn’t have a credit rating.
It appears that the application fee (approx $600) and the loan administration fee ($8 per month) cannot be avoided; they are the little extras added to the overall amount.
What did surprise us was that once the honeymoon period of one year was up and the interest rate had returned to the variable rate, we still had to pay another application fee of $600 as it was deemed a new loan, rather than a continuation of the existing loan at a different rate. The bank obviously saw this as another way of making money.
As we had no credit rating and were about to undertake a huge financial commitment, the bank wanted to ensure the return of their money. One of the ways it does this is to lend to customers who are in full-time permanent employment. As a student I was employed on a casual, part-time basis, but Piers was working in a full-time permanent capacity as a computer programmer. His position has since changed and he now works as a contractor as do so many in his profession. I have completed my studies, but work as a casual/relief teacher and so would not be considered permanent. It’s ironic that had we applied for a first-time home loan now we would not have met the requirement despite our increased income.
Another cost we were told about was lender’s mortgage insurance. If we borrowed more that 80 percent of the entire cost of purchasing the property, the banks required us to pay their mortgage insurance premium. If one is borrowing for the first time then the mortgage insurance company may be reluctant to provide insurance and so the bank may sometimes reject the loan application. This is what could have happened to us. We needed an extra $8,000 to make up the 20 percent required to avoid having to pay the lender’s mortgage insurance. Unfortunately we did not have this money. Luckily my parents agreed to provide us with the funds. They had to provide the mortgage insurers with a statutory declaration to this effect.
The final step was to accept the loan with the record low interest rate before the offer expired. It was only available for three months after which we would have to reapply and repay for a new loan at a higher interest rate. At this point, the vendor, for a reason so mysterious that it remains unexplained to this day, decided to keep pushing the settlement date back. Time was running out and the bank wrote to remind us that we only had one week to take up the offer. I explained the situation with the vendor to the bank staff and asked if they might indicate the urgency of the situation to the vendor and her solicitor. They agreed by phoning and writing to the vendor’s party about the imminent withdrawal of the offer. Finally, we had to ask for a week’s extension on the loan offer, as well as threaten the vendor with withdrawal from the property purchase. After much game playing the vendor finally agreed to settle moments before the withdrawal.
Despite our panic the vendor’s strange and unusual delaying tactics did allow us the time to raise the extra $8000. We did not need to take my parents’ money, nor did we need mortgage insurance. The banking staff also assured us that once we have an established credit rating the next time we borrow money should be hassle-free. We hope so because we really need to buy a new car.
Natasha Vogelmann is a primary school teacher in Sydney’s inner west. Her husband, Piers Johnson, is a designer for a company producing educational CD Roms.