Nov 072007

I never cease to be amazed at the trust and faith your average home buying punter puts in their chosen lender or mortgage broker.

Trust and faith that if they close their eyes and sign on the dotted, that everything will magically happen just as they believe it should. This is despite the fact that they haven’t a clue how everything from the dotted line stage through to settlement day is supposed to happen. Y’know, banks and lending institutions in general provide copious volumes of information for the fiscally ignorant to absorb when entering into what for many is life’s major financial transaction. It’s clear to me that 99.9% of this information is never read, with 0.1% being perused passingly but never really understood.
Terms like ‘LVR’, ‘Lender’s Mortgage Insurance’, ‘serviceability'(not a real word, but used by the industry never the less), and ‘comparison rate’ are just jargon to the great unwashed. Rightly so too. As a broker I have no expectation that my clients will understand such terminology, so I try hard not to use it. But wouldn’t you think that Joe Public might, at some point in the proceedings, wonder just what ‘Lender’s Mortgage Insurance’ was, when it applied, and how much said insurance might cost? Oooh, nooo…..that’s not a real concern. Until the premium appears on the loan contract at several thousand dollars.
I had a chap today wanting to fund a swimming pool purchase and installation to a house-and-land package he’d only just signed the contract on. “How much is the purchase price of the home”, I asked. “uhmm, $405,000, I think”, he replied. ‘I think?!!???!!?’ I felt very much like asking him if he really knew what he’d signed. “So, the contract price is $405,000”, I confirmed. He agreed. I then asked how much he was borrowing. “$360-something-thousand”, he replied somewhat vaguely. I responded that he was borrowing close to 90% of the purchase price, and that he was subject to mortgage insurance. “Oh no”, he assured me. “We’re only borrowing 70% or thereabouts”. A quick mental sum by yours truly told me the purchase price on that basis had to be around the $500k mark and not $405k after all. “So, you’ve already paid a deposit of ninety-odd thousand?” I ventured, trying to come to grips with what the real tale was. “No, twenty thousand we’ve paid”, he claimed.
By this stage I was well & truly flummoxed. Just what was the contract price? How much deposit had this twit paid? Just what was he borrowing? Someone had obviously mentioned mortgage insurance to him, but not explained it’s full import. More likely a cursory explanation of the cut-off points where LMI comes into play and where lenders will accept a loan risk without it. Did I want to get into a long-winded conversation with a punter who clearly had his finance arranged somewhere else? Nup! “Who’s your lender?” I asked him. “Oh, CUA”, he replied “Well then”, I responded confidently, “there’s your avenue to getting the pool in the ground at your new home. CUA will shortly hold your mortgage, so why not approach them before settlement for additional monies to cover the pool?” “You think they’d do that?” he asked. “We’ve already signed our documents and settlement is in 14 days” “Well, either that, or you might get them to advance you on a personal loan if new documents is too much of a drama for them, but seriously, your best, cheapest avenue is with your current lender.” I assured him. A complete fib, of course, but I’m afraid my tolerance level with the vacant minded & gullible is very close to donut level these days.
Caveat Emptor is the warning to those wanting to spend someone elses money. You wouldn’t shut your eyes at 110 klicks on the M1, so why would you enter into a finance contract without understanding the ins and outs of a duck’s bum? If you can’t come away from executing a contract or signing documentation for a loan without knowing in your heart of hearts that you completely understand all of the important fiscal implications of that documentation, then you shouldn’t have walked away without asking sufficient questions to ensure that you had that understanding. And yet, people obviously to just that every day of the week. The examples are out there, wandering blythely around, wanting to buy swimming pools before settlement.