These notes have been prepared primarily for Borrower Clients setting out matters which may be relevant to the Mortgage Contract which they are signing. We would welcome any inquiry seeking further information.

Lenders Considerations - A lender will examine any proposal under three (3) broad tests:- 

(a) Trust or confidence in the Borrower.This is the first requirement.Often there will be a long association which will satisfy this test. 
(b) Fiscal Soundness.In summary, the test is, can the Borrower meet his/her obligations as and when they fall due? 
(c) Security - If disaster should befall the Borrower then the Lender will want to be reassured that the security when realised (sold) will meet the outstanding debt.This means that the Borrower must have some equity in the security.Many lending institutions have rules or criteria to guide them in these tests.These criteria are (within limits) often changed to ensure that demand for funds meets availability. 

The Mortgage is, in fact, two contracts: 

• the first is a loan contract and  
• the second is a security or charge contract over the land. 

Banks (and some others) are in a privileged position of taking a security contract without incorporating a loan within the document.These are sometimes called an "open ended" mortgage. 

The Loan Contract- has four (4) arithmetical parts and a fifth. 

The arithmetical parts consist of: 

(a) Principal Sum  
(b) Interest Rate  
(c) Due Date  
(d) Periodic Payments required  

Given any 3 it is possible to calculate the 4th 

There is the fifth factor which induces the Lender to make the advance. This is referred to above as the Trust or Confidence Test.Often it will mean that the Lender will require some collateral obligation - such as Life Insurance to be maintained during the term of the Loan.

The Security Contract - as the name implies means the giving of the property as security to the Lender.In the event of the loan contract being breached then the Lender may either:

(a) take over the property (until the rents repay the loan) or 
(b) sell the property.

Our law controls the action of the Lender in such situations.There is, however, expressed or implied in every loan (by virtue of the Property Law Act 1952) that the Borrower:

• will pay the rates on the property 
• adequately insure the property
• pay the insurance
• maintain the property in good order
• satisfy any local body or government notices - e.g health requisitions. 

If these matters are not attended to then the Lender may be required to make the payment or put the work in hand.Failure therefore becomes as much a default as failure to meet the loan payments as they fall due.

Fire Insurance - some Lenders will insist on the fire insurance being with their nominated Insurance Company. 

Progress Payments:

Where a mortgage is for a building to be erected often the payments will be made as the building progresses.An inspection fee is usually payable at each stage.The loan offer will indicate how many instalments will be made and at what stage.It is usual for the Lender to retain sufficient funds to enable the project to be completed.

Mortgage Repayment Insurance

If a lending institution requires a collateral life insurance as a condition of the loan then there are several ways in which this may be achieved:

(a) a lump sum may be added to the advance
(b) the Lender may collect additional period payments to cover the cost of the policy.

It is becoming a more common practice for the life insurance to be taken over the lives of both spouses.

Redemption Fund Contribution

This is a contribution which some Lenders insist is paid to a common fund to provide against default or losses which may be suffered.

Credit Contracts Act 1981

This Act is consumer oriented legislation which covers all "credit" contracts - that is where one party receives back more in money (or money value) than he originally advanced.

It provides for full disclosure of documents to the Borrower - who has 3 working days after disclosure to cancel the contract.

The essential details in disclosure (apart from copies of the contracts) are:-

• name and address of Lender
• principal advanced
• cost of credit
• finance rate
• details of how and when payments to be made 

The Finance rate is a complex formula (devised by Newton Laws of Gravity fame) to enable the cost of each proposition to be judged by a common standard.However, if there is a choice there may be other considerations - such as the term (life) of the loan or the amount of period payments.The cost of credit may include such extras as Application and Inspection fees.

Premature Repayment

If you intend to repay your loan early there will almost inevitably be a penalty for early repayment.Before making a repayment you should check with the Lender to ensure that you pay as little penalty as possible.When selling you may have no option but to pay the penalty.

Difficulties - If during the term (life) of the loan you should experience difficulties please take advice at an early stage.If the Lender seeks you out it is usually too late.We recommend that you immediately seek help of

• This Office(or another lawyer)
• the Lender
• or-the Citizen's Advice Bureau.

Upon Repayment - It is necessary for you to ensure that the Discharge of Mortgage is registered to clear your title.This does involve some legal work and the payment of Government Duties.Please let us know as soon as you have repaid the mortgage loan (unless it is an open ended Bank security) so that we can take the necessary action.