17 Feb Common mistakes people make when choosing a home loan
It can be one of the most exciting experiences in life – finding a new home and becoming a proud new owner. There are so many steps involved in the property purchasing process that it can also be all too tempting to just go with the ‘easiest’ option!
When it comes to the mortgage that’s right for you, understanding the fine prints and taking your time to assess its competitiveness can make a world of difference to your ongoing finances and budget. Here’s our guide to the pitfalls you can avoid so the move into your new home remains sweet, rather than turning sour.
Paying too much LMI
When banks or lenders provide a mortgage to someone who doesn’t bring at least 20% of the total purchase price to the table as a deposit, Lender’s Mortgage Insurance (LMI) is charged. While the word ‘insurance’ may make this sound like an attractive prospect, don’t be fooled. It’s the lender who’s insured, not you! LMI protect the lenders in the event of a default on a loan provided to an applicant with a lower deposit – sometimes as low as a few percent of the total purchase price.
For some people, taking the hit and paying LMI makes sense to their long-term financial and property strategy. For many, however, the cost of LMI can significantly impact upon the equity that’s built in the home when calculated against the cost of the LMI itself. The LMI may sound like an easy way in to the market – but it’s important to consider the full ramifications of this additional cost.
Chasing interest rates
You’ve probably got a friend who prides themselves on always knowing what’s going on with interest rates. Some people love the thrill of the chase – hunting for the cheapest mortgage product on the market and refinancing their existing loan to take advantage of it. However, there are many hidden fees that come with a mortgage refinance.
Before you jump at the sight of an interest rate that’s lower than you’re currently paying, do your research to understand exactly what it would cost you to make the move.
Not shopping around
Too excited to look around? Stop right there!
Before you sign onto any mortgage, it’s crucial to know you’ve explored the entire market of lenders. While this can be an overwhelming thought, this is where the power of a fantastic mortgage broker makes all the difference. It’s their job to be aware of each product and option available to you – and they should be bringing competition to the table.
Not optimising your loan structure
Not all loans are created equal. Whether you’re a first-time home buyer or a seasoned property investor, understanding exactly how your mortgage is structured and what that means to your back pocket is a non-negotiable step of the shopping process.
Avoiding cross-collateralisation is the first step to making sure your future borrowing power isn’t limited. The choice of an interest-only loan is also one that requires consideration and understanding. Even access to an offset account should be a part of your negotiations – make sure everything is on the table!
If you need to know more about getting a loan , give us a call at 0488 814 148 for a chat to see how we can work together to secure a loan that is best suited to your asset strategy and borrowing capacity.