Settlement and loan management

Things You Need for Settlement

There are a few final steps before you can settle your new personal loan, and several things you will need:

Building Insurance

You will need to insure the property being offered as security and also have the lender’s name recorded on the policy as mortgagee. If the property is a strata title unit, you may need to get the lender a copy of the policy that is held for the entire unit block. The lender’s name will not necessarily need to be recorded as it is with a house. Some lenders will ask you to provide a fresh copy of your property’s insurance at each renewal.

Signing and Returning Documents

Prior to settlement you will have signed the loan documents, mortgage, and other documents and returned them to the lender or its panel solicitor. At settlement, the loan funds will be drawn and the lender or its solicitor will make out bank cheques to either the vendor or the outgoing mortgagee.

Settlement is reliant on a number of factors, including:

• Vacant possession of the property — if you are purchasing a property, the occupants must move out before settlement
• A discharge of mortgage, if a refinance
• In any case, the property must be covered by building replacement insurance, as this is a key requirement of all lenders
• Any fees payable to the lender that have not already been paid will be deducted from the proceeds of the loan

If you have a conveyancer or solicitor acting on your behalf, he or she will arrange for settlement and advise you of any additional costs you may need to pay. If you are purchasing a property, he or she will inform the council and have the rates records updated. The same is true for strata managed properties.

Once settlement has occurred, the lender will normally issue a welcome letter detailing the actual interest rate, repayments, repayment frequencies, and terms.

Settlement of the loan is really only the beginning

Settlement (sometimes called drawdown) is when the loan funds are released. It is the point from which interest starts to accrue and the parties become bound by the rights and obligations of the loan contract.

Settlement Letter

Most lenders will issue the borrowers a settlement letter shortly after the loan is settled. This communicates key information about the loan, such as:

• Repayments: the amount and frequency required
• Interest rates: the prevailing rate and whether it is fixed or variable
• Term: the length of any fixed or interest-only term and the total loan term Alternatively, the lender may arrange a direct call to you to discuss the setup of repayments and access methods.

Access Methods

As part of the settlement letter, or separately at about the same time, the lender will provide you with the details of the various methods available to access or operate your loan facility. Generally speaking, there are three common access methods:

1. In person, through over-the-counter withdrawals, deposits, and inquiries at the lender’s branch. This is becoming less common as banks close down local branches and increase fees at branches to encourage you to use telephone or Internet banking.
2. By telephone. Call centers offer basic assistance to borrowers. However, some lenders outsource call centers, and you may end up speaking to someone in another country!
3. Internet, Mobile or telephone banking. The lender will issue a login code and password. This allows you to access services over the Internet, or by telephone, using an interactive voice response system (IVR). Such services include:
   • Account balances
   • Transaction listings
   • Additional payment requests
   • Redraw requests to nominated accounts, by BPAY or Pay Anyone Most lenders are now also building custom applications for smart phones and tablet computers, to allow for mobile Internet banking.

Transactions

Once settled, the loan enters the transaction phase where repayments are made, interest is charged, and statements issued. Transactions can be:

1. Credits
   • Direct debit repayments: monthly, fortnightly, weekly, or one-off
   • Salary credit: the direct payment of part or all of your wages to the loan account
   • Electronic credit: other direct payments to the loan account such as rental payments, dividend payments, etc.
   • Over-the-counter deposits (by cash or cheque)
2. Debits
   • Interest
   • Fees
   • Redraws by:
     • Telephone, Internet banking, or SMS Banking, including internal transfers and transfers to linked bank accounts
     • BPAY
     • Pay Anyone  – usually made by using Internet banking; the payment is sent to the recipient’s bank account using the bank account number
     • Inward Direct debit  – usually for or any regular utility bill, such as electricity
3. Informational
   • Rate changes: usually changes in the variable rate or a convert to or from a fixed rate
   • Interest savings estimates for offset accounts