Volume #21: How I Explain Loan Documents to First Home Buyers... Things Your Lawyer Must Cover!
Read time: 4-5 minutes
PROBLEM: My Client Asked, “What Will the Lawyer Talk About at the Loan Signing?”
When your client asks, “What exactly will the lawyer go over during the loan signing?”, the answer isn’t simple. It's not just about reviewing documents; their lawyer has a fiduciary duty to the bank, ensuring all legal and financial requirements are met. Under the Credit Contracts and Consumer Finance Act (CCCFA), the lawyer also ensures that borrowers fully understand their obligations and potential risks.
This means that during the loan signing:
Their lawyer represents both the bank and the borrower, ensuring the mortgage is registered properly.
Mandatory disclosure requirements are covered to protect both parties.
Key loan details like fees, interest rates, and default penalties are clearly explained so the borrower fully understands their financial commitment.
RISK: Why Thorough Disclosure Matters
Failure to meet disclosure requirements can have serious consequences. If crucial details about the loan aren't fully explained, both the borrower and lawyer can face issues:
The lawyer could be held responsible by the bank if the loan’s terms aren’t adequately disclosed.
Lack of understanding can lead to continued default, putting the borrower’s property at risk.
Making sure that every aspect of the loan is disclosed properly avoids these risks for all parties involved.
CONTEXT: Every Loan (and every Purchaser) are Different
Most lawyers will give a high-level verbal summary to any purchaser taking out a loan, however this is quickly forgotten. To make sure nothing gets missed, we provide a full checklist for the purchaser to take home.
SOLUTION: HouseMe Legal Provides a Personalised Checklist Covering Wider Loan Disclosures and Specific Loan Disclosures
Wider Loan Disclosures
At HouseMe Legal, we make sure that clients receive the full picture by covering the wider legal disclosures required under the CCCFA. Our example is at the bottom of this section.
These disclosures include, but are not limited to:
Mandatory disclosures about the loan, including interest rates, fees, and any additional charges.
Ensuring the borrower knows their right to cancel the loan agreement within five working days… However, as we remind the purchaser, this will make their life stressful leading up to settlement day if they do not have enough time to re-document the loan or change lenders.
Explaining the implications of default, such as losing the property if payments aren’t made.
Highlighting the borrower’s right to negotiate the loan terms, often done by the mortgage advisor, including interest rates and fees.
Clarifying the lawyer’s fiduciary duty to the bank, which includes registering the mortgage on the property title.
These disclosures ensure that the borrower understands their broader obligations and risks under the loan agreement.
Specific Loan Disclosures
To ensure complete transparency, we provide a personalised loan summary for each borrower, detailing the specific terms of their loan. Our example is at the bottom of this section.
This includes:
A copy of the loan agreement and related documents.
Names of the lender and borrower(s), along with the property address.
Details about the guarantor (if applicable).
Explanation of the priority amount and type of mortgage.
Interest rate details: fixed or floating, default interest rate, and how long the rate is fixed.
Repayment terms, including the start date, initial repayment amount, and repayment frequency.
Initial and ongoing fees associated with the loan.
The insurance requirements and any mandatory conditions.
By clearly presenting these specific details, we ensure borrowers are fully informed about their commitments.
TL;DR - Summary
Here’s what your lawyer should cover when signing loan documents:
Full disclosure checklist of loan terms, including interest rates and fees.
Clear explanation of your right to cancel within five working days.
Discuss the consequences of default and loss of property.
Review of all signed documents to ensure they are properly witnessed and explained.
