Common Home Loan Myths DeBunked!

 

A number of myths and misconceptions that keep coming up about mortgages.

 

1. IT DOESN’T MATTER IF YOU PAY YOUR LOAN MONTHLY OR FORTNIGHTLY

False: A 30-year, $350,000 loan on a 4.74% interest rate, would equal monthly repayments of $1,823.66. If you paid half ($911.83) fortnightly, the loan term would be 25 years and six months, and you’d save over $53,000 in interest. Weekly payments are even better!

 

2. ONCE I FIND A GOOD RATE, I’M SORTED FOR THE LIFE OF MY LOAN

Unfortunately not: Lenders can move their variable rates at any time, so a loan that’s competitive today might not be competitive in the future. Take a look at your loan once a year.

 

3. A COMPETITIVE INTEREST RATE DOESN’T REALLY MATTER BECAUSE THE RESERVE BANK CONTROLS HOME LOAN RATES

Another reason why it pays to consult a Broker: The RBA adjusts the cash rate from time to time but each lender can change their rates as they see fit.

 

4. THE BANK WILL CHARGE A FEE IF I SWITCH TO ANOTHER LENDER WITH A LOWER INTEREST RATE

Not always: Switching fees have reduced in recent years. Lenders are not allowed to charge exit fees on variable rate loans taken out after 30 June 2011.

 

5. HAVING CREDIT CARDS WITH A HIGH LIMIT & LOW AMOUNT OWING LOOKS GOOD TO THE BANKS

Wrong: Lenders actually assume that the credit card is used up to it’s limit even when it isn’t. This has a massive effect on your borrowing power. In some cases it can derail your home loan application altogether!

Before applying for a loan, cancel the credit cards that you don’t use / need, or at least decrease their limit.

 

6. LENDERS MORTGAGE INSURANCE WILL PROTECT YOU IF YOU DEFAULT ON YOUR LOAN

Incorrect: Lenders Mortgage Insurance (LMI) is a fee you pay if you borrow more than 80% of the property value. It sucks but LMI doesn’t actually protect you as the borrower; it protects the bank in case you’re unable to repay the loan.

Consider getting mortgage protection insurance if you want to be insured as a borrower.

 

7. YOU WON’T QUALIFY FOR A LOAN IF YOU HAVE A BAD CREDIT HISTORY

We’re here to help: All lenders use a credit reporting system to check your credit rating which has been reduced from 7 years credit history to 5 years.

Depending on your situation,  mortgage brokers consult specialist lenders who may consider your case if you have clear reasons and evidence of your poor credit listing details.

Know what they know by finding out your history at www.mycreditfile.com.au.

 

8. SELF EMPLOYED PEOPLE PAY HIGHER INTEREST RATES

It’s all in the paperwork: If you’re self-employed and can’t produce your BAS statements / tax returns, you may be offered a low documentation loan which can have higher interest rates. If your financials and tax returns are in order, you qualify for the same rate as a regular PAYG employee.

 

9. THE BEST HOME LOAN DEAL WILL COME FROM YOUR CURRENT LENDER

False: A lot of people will look to get a home loan from their current lending institution because they believe that this lender will provide them with the best rate and home loan deal on the market. Unfortunately, this isn’t always the case. While lenders do recognise and reward loyalty, it still pays for a borrower to shop around. A borrower’s unique mortgage needs may mean they are actually able to find a better home loan deal with another lender.

 

10. BANKS DON’T LIKE LENDING TO SINGLE PEOPLE

Not true: Some potential borrowers wrongly believe that they will have trouble obtaining finance because they are single and not looking to take on a loan in conjunction with another person. In reality, this is not the case. A lender will more than happily provide finance to a single person provided they can show they have the ability to service the home loan comfortably.

 

11. I NEED A 20% DEPOSIT

You have options: Housing affordability reports such as those compiled by CoreLogic assume buyers have a 20 per cent lump sum deposit. Because of this, some buyers believe they cannot secure a mortgage without the 20 per cent lump sum. But this is not the case.

The Reserve Bank of Australia states that some lenders accept a deposit as low as 5-10 per cent. Lender’s Mortgage Insurance (LMI) can reduce the deposit required. The cost may be rolled into the mortgage or can be paid as a lump sum. Getting into the market now rather than waiting until you have the full 20 per cent deposit might be advantageous, so this option is worth considering. If you don’t have the 20 per cent deposit, ensure you are not overextending, as a lower down payment will mean larger repayments and interest costs over time.

Another option some lenders offer to home buyers is the chance to use a family guarantee from a parent, grandparent or sibling. Once you’ve paid down enough of your loan to reach this threshold you can usually have the family guarantee released.

 

Everyone’s situation is different. There’s many benefits to using a Mortgage Broker but most of all, we expertly match you with the right loan for your needs and circumstances. Submit an online application or Contact us for further info.