Know your rights and obligations as mortgagor (borrower) within NZ

Obligation to repay the loan principal and interest

If you borrow money under a New Zealand mortgage, your most obvious and important obligation is that you must repay both the principal amount borrowed and the interest.

Can I challenge the interest rate?

The mortgagee (the bank or finance company that lends you the money) is entitled to charge interest on any money advanced. There is no legal limit on the rate of interest that may be charged; the interest is normally a matter to be agreed on between you and the mortgagee.

Under the Credit Contracts and Consumer Finance Act 2003 a mortgage contract can be re-opened by the court if one of its terms is oppressive or if the mortgagee acts oppressively. But a high interest rate will not in itself be a ground for re-opening the contract: in general there will need to be some other element before the court will intervene, such as an unequal bargaining relationship between you and the lender, or an additional agreement attached to the loan agreement (see also "Mortgagees entitled to no more than full repayment" below).

Repayment of the mortgage amount

As a mortgagor you have the right to repay the mortgage, either:

• before the due date
• on the due date
• after the due date has expired and the mortgagor has served you with a notice of default (under sections 119 to 121 of the PROPERTY LAW ACT 2007; see below)
• before the mortgagee exercises its power of sale (see How to defend a mortgagee's right to power of sale)

This right is known as the "equity of redemption", and the mortgagee is not permitted to "clog" your right of redemption. This means that the mortgagee is not allowed to prevent the early repayment of a mortgage.

Mortgagees entitled to no more than full repayment

Further, a mortgagee may not attempt to gain some additional advantage from you other than full repayment of the loan principal and interest, and costs and expenses. Therefore if the mortgage transaction includes some other agreement giving the mortgagee a further advantage – for example, that you will buy certain goods from the mortgagee and from no-one else – that other agreement will be void.

The mortgagee is also not entitled to include in the mortgage agreement an option to buy the property concerned.

What happens if I can't make the mortgage payments?

If you default in making your mortgage payments when they are due, by law the mortgagee has a series of rights that it may exercise. Ultimately the mortgagee will wish to recoup the money it is owed, and this is usually achieved by exercising its power of sale under the PROPERTY LAW ACT 2007.

Before the mortgagee can take any action to sell the property, it must issue you with the proper notice under section 92 of the PROPERTY LAW ACT 2007 (see How to defend a mortgagee's right to power of sale).

This notice must set out:

• the nature and extent of the default complained of
• the date by which you must remedy the default (if it is capable of being remedied)
• the rights that the mortgagee is entitled to exercise if you do not remedy the default by the specified date

The date specified must be at least four weeks from the date on which the notice is given. But if the mortgage contract specifies a period for this that is longer than four weeks, the date specified in the notice cannot be earlier than the end of that longer period.

Cautionary notes

• The most usual form of security given to a mortgagee under a mortgage is a person's home, which is usually his or her most valuable asset. If the mortgage is over a family home the PROPERTY (REALATIONSHIP)  ACT 1976 and the JOINT FAMILY HOMES ACT 1964 have provisions that must be taken into account by both the borrower and the lender (see How to: Division of property under the Matrimonial Property Act and How to apply for a joint family home).
• Mortgages involve lengthy documents that are full of legal and technical terms. Because the consequences of a mortgagor defaulting under a mortgage are usually severe, anyone intending to enter into a mortgage contract should seek legal advice from somebody experienced in this area of law.