Taking out a mortgage to buy a home is a big step. That’s why you need to know what you are getting into. There are a number of mortgage myths in circulation. Here, we bust some of those preconceptions, to help you make the right decision.
Mortgage myth #1: The lowest rate is always preferable
Some lenders advertise lower interest rates than others. But the lowest rate might not actually be the most competitive. Sometimes, a low rate incurs other fees, which a slightly higher rate may not.
The lowest rate might not be the most flexible, and may not have other interest saving features that a slightly higher rate loan product might, e.g. an offset account.
Mortgage myth #2: You need a 20 per cent deposit to secure a mortgage
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 downpayment will mean larger repayments and interest costs over time.
Mortgage myth #3: You need to pay mortgage broker fees
The lender pays the mortgage broker, not you. A mortgage broker helps you get a competitive loan that is right for you, and weigh up complex decisions, such as low interest rates versus higher fees.
Mortgage myth #4: The Reserve Bank of Australia controls the rate, so rates aren’t competitive
While the Reserve Bank of Australia (RBA) changes their rate depending on economic growth, lenders are able to adjust their rates independently. The lender’s rates will likely reflect the RBA rate, but lenders are also concerned about being competitive. Review your loan regularly to ensure it is the most competitive option for you.
Mortgage myth #5: Pre-qualification secures your loan
The purpose of pre-qualification is to let you know how much you are eligible to borrow. This does not mean your loan is approved. You will need to provide further documentation, and receive approval to secure the loan.
Mortgage myth #6: There is no difference between paying your loan weekly, fortnightly or monthly
This is not true. Paying your loan fortnightly will mean you pay less interest over the life of your loan. You will pay even less interest if you pay it weekly.
Connecting with a mortgage broker helps you understand the ins and outs of securing a mortgage to find the right mortgage for you.