Clarifying Loan Contract and Commercial Lease: Expert Advice for Mr and Mrs Wang

To
Mr and Mrs Wang
Subject: Advice regarding the loan contract and commercial lease
Respected Sir/Madam
1. Mr and Mrs Wang have made arrangements for finance for the purchase of 282 Lawrence
Street, Alexandria.
We have come to know that you have made arrangement for finance to purchase the
property located at 282 Lawrence Street, Alexandria.
1. The schedule to the mortgage envisages that we will pay interest at the rate of
6.00% per annum. It then goes on to say that if we make repayments within 14 days of the
due date, the interest rate will be 4.00%. It was our understanding that the standard rates we
would pay is 4.00% and that we may be required to pay 6.00% interest if we are late making
our payments. We want to ensure that our understanding is correct. Why the mortgage
document is expressed this way?
We would initially like to advise you in relation to the confusion regarding the 4%
and the 6% interest rate. The financial table of the loan document provides that Annual
interest rate is 4.00% per annum percentage rate. However if you make a delayed payment
you have to provide for a arrears fees which is $50. In addition the default rate at any time
equals the annual percentage rate at that time plus a margin of 2 % per annum. At the
disclosure date, it is 6.00 % per annum.
2. Does this mortgage allow us to make extra payments of principal or interest in the event
that we have extra funds available?
We would also like to advise you on whether the mortgage allows u to make extra
payments of principal or interest in the event that you have extra funds available. The loan
contact provides that you may prepay any part or all of the balance at any time. If you do, you
must pay the bank any applicable fees and charges payable under the National Credit Code
on the day you do so. Therefore prepayment is allowed under the contract.
3. It has always been our understanding that if our financial circumstances changed and we
are unable to make mortgage payments, then the mortgagee would be able to take possession

of the property, sell it and then recover any shortfall from us. Although we have read the
memorandum, we cannot see where the mortgagee is granted these rights. Please advise us.
We also came across you question that whether the mortgagee would be able to take
possession of the property, sell it and then recover any shortfall from your end in case of non-
payment even if you did not come across the terms in the memorandum. Under the relevant
sections of the Consumer Credit Code it is provided that the credit provider can take
possession of the property to sell it, if it has the court’s approval or the written consent of the
occupier which is given after the occupier is informed in writing. It is also an implied terms
in the mortgage contract that the mortgagee would be able to take possession of the property,
sell it and then recover any shortfall from your end in case of non-payment of debt.
4. Do we have any specific obligations in respect of the state of repair of the property?
We would like to draw your attention to the question that whether you have any
specific obligations in respect of the state of repair of the property. Under the third paragraph
of the memorandum it is your responsibility as the mortgagor to during the continuance of
this security, whether the mortgagee shall or shall not have entered upon and taken
possession of the mortgaged land, make such repairs as may be necessary for keeping the
buildings now or hereafter to be erected on the mortgaged land in good and tenantable repair,
order and condition, and in particular will, whenever the mortgagee considers it necessary,
paint in a proper and workmanlike manner to the satisfaction of the mortgagee such parts of
the mortgaged premises as are usually painted and will, on being required by the mortgagee
so to do, forthwith amend every defect in the repair and condition thereof.
5. Is the form of loan agreement appropriate bearing in mind our proposed ultimate use of
part of the property for a business?
The purpose of the loan is to assist you with the purchase of residential premises at
282 Lawrence Street, Alexandria NSW 2015. This means that you may not be able to get a
loan if the bank is informed that the premise is to be used for a commercial purpose. Thus
this needs to be negotiated with the bank and the term needs to be clarified.
6. Rent: (a) Does it remain the same for the rest of the lease? (b) If not, how will any new rent
be determined?