7 common home loan myths
18 October 2010
Buying a home will usually be the biggest investment that most Australians make. Before you wade into the home loan market, however, there are a number of common mortgage myths that need to be dispelled in order to get the best home loan deal.
Assets are just as good as having a regular income
Not so. A regular income is what lenders are really interested in, as this will determine your ability to make regular repayments against a loan. Banks will only loan as much as you can afford to repay, so your salary is more important than the strength of your asset position.
The cheaper the home loan interest rate, the better
Cheap home loan rates naturally grab your attention, but such loans sometimes come with higher fees and offer less repayment flexibility. However, cheap interest rate home loans are worth investigating, as competition for borrowers' business is fierce and there are some good deals to be had. One example is Bankwest's Rate Cutter Home Loan, which offers discounted interest rates normally associated with "no-frills" basic variable rate home loans, but comes with all the benefits of a fully featured home loan.
Minimum monthly repayments are always the best
This is a common misconception. In reality, interest on a mortgage is usually calculated daily and charged monthly. So by making more regular repayments over the life of your loan, you will actually reduce the amount of interest paid. In fact, by making fortnightly repayments, this can add up to the equivalent of 13 monthly repayments, or one extra monthly repayment every year.
A fixed home loan interest rate is always safer than a variable rate
Variable rates have been quite low in Australia for a couple of years as a result of the global financial crisis, so fixed rates are not always the cheapest option. Variable interest rate home loans are the most popular in Australia, so it's worth doing your research and examining which home loans will provide you with the most value.
You need a 20 per cent deposit to get a loan
Loans where you can borrow up to 100 per cent of the property value have been around for years. If you don't have a lot of money behind you, these kinds of loans can be an attractive option. However, it's important to consider your financial situation, as the flip side of these loans is that no deposit may mean higher interest rates and fees over the life of the loan.
A 100 per cent loan means nothing out of your pocket upfront
In an ideal world, this might be the case. In reality, 100 per cent loans only cover the actual amount borrowed from a lender. There's a lot involved in buying a property, so allow for mortgage insurance, legal fees, mortgage duty as well as building inspections and moving costs.
Refinancing is too expensive
Lenders often make it seem prohibitively expensive to refinance elsewhere, but home owners can save many thousands over the life of their loan if it is refinanced wisely. The good news is that competition for home loan business is fierce, so shop around and see what different lenders are willing to offer. You might be surprised.
Important things you should know:
For the Bankwest Rate Cutter Home Loan, lending criteria, fees and charges apply. Terms and conditions apply and are available on request