Striking a deal

The ideal mortgage contract has benefits for both sides: you get a loan to match your needs at a competitive price, and the lender gets some long-term business. Look at it as a deal where you can negotiate. 

Knowing what you want

You generally sort out with the lender the key parts of the deal before you fill out the application form and before the lender formally offers you a loan. The lender will have lots of helpful advice, but it helps if you know when you start negotiating just what you want:

• How much do you want to borrow? Remember, the lower the amount you borrow, the quicker you'll pay it off. If you need $147,000, then borrow that - don't borrow $150,000 just because it's a nice round figure. Lenders typically let you add to your loan your lawyer's and valuer's fees, and their own charges. But this means you'll be paying interest on that money. Pay the fees in cash if you can.
• How long do you need the loan for? If you opt for the shortest period you can afford, you'll pay less interest overall. Use our Quick mortgage calculator to help.
• Should you go for a fixed interest rate, a floating rate, or a mix? This can have a huge impact on the cost of your loan.
• Do you want flexibility to be able to draw down additional money in the future, or to make lump sum repayments on your loan? You could take a revolving credit account. Alternatively, you could apply for a table loan with a higher limit  say $150,000, and a term of 15 years.  But then only actually borrow $147,000 if that's all you need, and aim to repay it in a lot less than 15 years.
• Match the repayment periods to pay periods - if you're paid fortnightly, set fortnightly repayments.
• You can negotiate on the application fee if there is one. Lenders will often waive it to get your business. Ask about any other useful benefits, such as a day-to-day bank account with no transaction fees.

Our checklist gives you things to ask.

Once you've worked out exactly what sort of loan would suit you best, it's time to fill out the application form. The documents you'll need to show the lender include:

• Proof of income. For wage and salary earners this could be pay slips or a letter from your employer stating your income. If you're self employed, you'll need to provide one to three years accounts, depending on the lender. If you haven't been in business this long, they'll want to see your business plan and cash flow forecasts.
• Up to date details of debts and expenses (it is often a good idea to take a copy of the budget that you have done on Sorted).
• A copy of the sale and purchase agreement for the property.
• A registered valuers report
• If it's a lender you haven't used before, they'll want to see identification such as your driver's licence or passport.
• A copy of the ratings valuation may be enough if you're borrowing less than 80 percent of the value; if you're borrowing more, you may be asked to get a valuation from a registered valuer. The latter needs to be addressed to the lender.

Fill out the forms completely and accurately. Ask your broker or lender to help with any question you don't understand. It's not a good idea to leave blank spaces on any form which you sign. 

Credit history

Lenders will check with a credit company to see whether you've failed to repay any loans or other debts. If you haven't kept up with bills in the past, lenders may ask you to provide a much higher deposit, so they reduce their own risk. They may turn you down.

You can check your own file with credit agencies and point out errors if there are any. Veda Advantage is the biggest company, but there are others. 

Student loans

Your student loan and the repayments you make on it are counted along with your other debts such as hire purchases, credit card debt or car loans, when lenders work out how big a mortgage you can afford to repay. A large student loan will reduce the amount you can borrow to buy a house. Lenders are particularly cautious if you want to borrow over 80 percent of the property value because their research shows the risks of the mortgage not being repaid increase above that point. 

Guarantors

You may find that you will only be offered a loan if you provide a 'guarantor' - someone else who signs a legal agreement that they will repay the loan (or part) if you don't.

A lender will usually ask that a guarantor puts up an asset of their own, such as their home, as security for the loan. This means that if you don't keep up the payments, the guarantor's house could be sold to meet the shortfall. It is crucial that guarantors get independent legal advice. 

Mortgage protection insurance

You may be offered this insurance, which makes the mortgage repayments for you if you die, become disabled or are made redundant the details vary between policies.

It's usually not compulsory, but it's worth considering, especially if you have only one income or dependents.

If you just want insurance which will pay out if you die, you could consider term life insurance. If you want more comprehensive cover should illness or injury stop you working, consider income protection insurance.

In either case, shop around. Your lender may have a related insurance company but that won't necessarily be the cheapest. Get a price from your lender for the cover you need and then ask a couple of other insurance companies. 

The lawyer

Choose a lawyer yourself to do the property transaction and the mortgage documentation: don't just take the one recommended by someone else involved in the house or home loan deal. It is important that the lawyer is independent and acting only for you.

It's a good idea to ask the lawyer to write or update your will at the same time. Some will do this for free, or for a reduced fee, when you ask them to do the legal work on your home and mortgage.