When you take out a mortgage, the mortgagor – that’s you - is given a booklet called “standard mortgage provisions” or something similar.
Did you read it faithfully along with all the other paperwork you received around settlement?  If you are like most people this paperwork has gone into a file somewhere and it has never been opened.  But you should read, or skim because you need to understand a few things:
  • It you do not pay your council rates or water rates or strata fees on time you are in breach of your mortgage.
  • If your property is not insured for any period, you are in breach of your mortgage.
  • If you do any sort of “structural” (as opposed to “cosmetic”) renovations you need to advise your bank.  This could include subdividing the block, or putting on another bedroom.
There is a lot more in these standard provisions, as you will read tonight (hopefully), but these 3 are the most common to be contravened.
Why is any of the above the banks business, isn’t this your private business?  Simply put no.  The bank considers itself a bit like a part owner or your property and as such wants its investment protected.  Not paying your rates or being late could be the first sign of financial stress.  Not being insured or “self-insuring” is clearly unwise.  With any structural renovations, even if you can paying for the whole thing cash and don’t need a further loan, the bank still wants to know what your plans are and will want to assess whether your renovation plans  will add value or if you are overcapitalising.
And there is another lesson here.  If you try to refinance to another bank, the new bank always asks for a copy of your rates notice.  The new bank always asks for a copy of the insurance.  The new bank will always send a valuer out to see if the property has been maintained or renovated.  I hope you can now understand why.
You only get the luxury of having your own private property business when you no longer have a mortgage.  Until then be mindful of these legal provisions.