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Sometimes you have to go back to the past to see the future- especially with Bankers!
Unfair clauses in home loan contracts
From Money Magazine, March 2007
By Effie Zahos
http://finance.ninemsn.com.au/pfproperty/homeloans/8123509/unfair-clauses-in-home-loan-contracts
Home loan contracts may now be simpler, but they're still full of one-sided, abrasive terms and conditions. Unfair clauses in home loan contracts like "we the bank, can introduce a new fee, increase a fee or change the method of calculation, frequency and manner of payment any time we like" have been a gripe with Money for some time now.
We first reported on these home truths back in 2002 and, as one reader Vanessa recently found out, little has changed.
"I have read through my terms and conditions of my CBA (Commonwealth) home loan [and] it states that the credit cards are secured against my mortgage (property). So why do I pay such a high interest rate of 17 percent when my mortgage is only 7.72 percent? Surely, the risk is no longer as high being that they have my property as security?"
Good question! Any homeowner with a mortgage before 1996 may well be in the same predicament. Why? Because of a pesky little clause, known as the "all monies clause". Mercifully, you won't find this clause in new mortgages thanks to the Uniform Consumer Credit Code (UCCC). Even if you have an old mortgage, credit cards are deemed to be unsecured.
Look out for it though if you have an investment property loan as the UCCC does not regulate business loans or investment loans. An "all monies clause" allows the lender to use your home as security against any other debts you may have with it. So if you have a mortgage with bank A and then take an unsecured loan, such as a credit card with bank A, and then default on that loan, your home could be at risk because technically that mortgage extends over to all debts you have with bank A.
"Chances are the lender will not act on this clause but technically they can," says Katherine Lane, solicitor with the Consumer Credit Legal Centre NSW. Personally, I'm with Vanessa. Not so annoyed about the clause itself, but rather why I was paying such a high rate (pre UCCC) on my credit card?
Banks have long used the argument that the interest on credit cards is justifiably high because they are unsecured.
Well, what do you say to somebody like Vanessa? Money is still awaiting a response to that question from the Commonwealth Bank. The bank, however, did get back to us as to why Vanessa pays a high rate now: "the card is not deemed to be secured".
Lane's not too concerned with what is now an obsolete clause. She has her sights set on other unfair clauses that are alive and well in today's mortgages.
"If you have a mortgage and or credit card plus a savings account with the one institution then the lender could take funds out of the savings account to clear any arrears. In fact, you don't have to be in arrears. This does happen and is now happening more frequently," says Lane.
The clause Lane is referring to is the "account combination" clause. Her best tip is that if you are experiencing financial difficulty, move your savings account elsewhere. Of course this is difficult if you have a packaged home loan, as most borrowers seem to now.