When researching home loans and lenders, it can be hard to decipher between fact and fiction when there are so many myths around. So, if you are looking to apply for a home loan it is important you get the facts straight. Take a look at the top 6 mortgage myths exposed below.
1. Only the balance of your credit card is included
This can have a huge impact on a person’s borrowing power when they get it wrong. Many borrowers get caught out with thinking that lenders will only assess the amount owing on a credit card, however this is not the case. When it comes to credit cards, your total credit card limit will be assessed, even if you don’t have any money owing on it. So, if you have credit cards that have a $0 balance and you don’t use it, cancel them. The fewer credit cards you have, the better your borrowing power.
2. LMI protects the borrower
Unlike what you may have been told or believe, Lenders mortgage insurance
(LMI) protects the lender, not the borrower. This insurance is put in place as a safety buffer for lenders in case you are unable to meet a repayment. You will usually only have to pay LMI if you borrow more than 80% of the purchase price and the more you borrow, the higher the LMI fee will be.
3. I only need to save for a deposit
There are a number of purchase costs you will need to save for beyond a deposit. Many home buyers get caught other thinking that they only need to save for a deposit and have missed on a property as they did not have the funds to cover the other costs. The other purchase costs you will need to save for include:
- Pest and building inspections
- Lenders mortgage insurance (if you borrow more than 80% of the purchase price)
- Loan establishment fees
- Stamp duty
- Solicitor and conveyancer fees
- Moving expense
4. The best home loan has the lowest rate
A low interest rate home loan may be able to help you save money, it should not be the only factor you consider when looking for a home loan. The advertised interest rate could possibly come with other extras such as higher fees or less features. So, before choosing a home loan, take a look at your own financial needs and goals and see which product would suit you best. For example, if your goal is to repay your home loan as soon as possible, you might opt for a loan product with an extra repayment feature. Even if this loan has a higher interest rate, you will most likely end up saving more in the long run. Also, to get a more realistic view of how much you will be paying, take a look at the comparison rate as this includes all other fees.
6. I don’t need an income if I have assets
Even if you do have a number of assets, you cannot be approved for a home loan on assets alone. Lenders need to see that you have a regular income source to meet the repayments. Your income will help determine how much money you are allowed to borrow.
It can be confusing to know whether to get a variable rate or fixed rate mortgage, and what features are important. That's why it's important to not only check the right rates, but make sure that you're getting the right features in your home loan. Get help choosing the right home loan
Anouska Linz is Manager, Online Sales at State Custodians and has over 10 years’ experience in financial services, both in broking and banking. Holding a bachelors degree in accounting, Anouska quickly discovered a love for mortgage lending and assisting people to achieve their home ownership goals. She leads a team of highly experienced lending specialists who are passionate about finding lending solutions which result in real wins for the customer. She is also a massive netball fan.
For more information on our home loans, visit www.statecustodians.com.au or call 13 72 62.