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Common mortgage myths debunked

The mortgage world can be confusing at times as many Australians are flooded with misinformation, but how can you tell what is true and what is not? That is why we have written this blog.

In this article, we will run through common mortgage myths that many Australians believe, and we’ll set the record straight, so you understand the reality of the situation. If you are in the market for a mortgage, this blog will be beneficial to help you on your journey.

Myth: You need a 20% down payment to buy a home.

Reality: While a 20% down payment can help you avoid lender’s mortgage insurance (LMI), there are other options available such as the First Home Buyers Grant or First Home Loan Deposit Scheme

Government grants such as FHBG and FHLDS allow first-home buyers to deposit as little as a 5% deposit without paying LMI. That means more Australians can move into homes sooner while saving thousands on additional costs.

For example, Michael is purchasing a $400,000 house. Using government grants, Michael may pay a minimum of $20,000 for his home deposit instead of the assumed $80,000.

Myth: All lenders in Australia are the same.

Reality: Lenders in Australia differ in their loan products, fees, and customer service. It is important to compare offers from multiple lenders and consider factors such as interest rates, fees, and loan features.

Every mortgage lender offers a different range of products and lending criteria. This means you may end up paying more for your mortgage if you do not compare lenders and loan products.

Do you need help choosing a mortgage lender? We can help you select the right mortgage lender that suits your needs.

Myth: You can’t get a mortgage in Australia if you have a low credit score.

Reality: While a low credit score can make it harder to qualify for a mortgage, there are still options available such as seeking a guarantor or working to improve your credit score before applying.

A guarantor is someone that provides added security for a loan by taking some of the financial responsibility of the borrower. A guarantor can do this by using the equity in their own home.   

If you currently have a low credit score, you can always work on improving it before applying for a loan. This may take some time, but it will enable you to receive a better deal from the lender.

Working with a low credit score may incur additional costs, meaning you need to be more cautious when looking for and applying for loans.

Myth: You should always choose a variable interest rate in Aus.

Reality: The best interest rate type for you depends on your financial situation and goals. A fixed-rate can provide more certainty and stability, while a variable rate can provide more flexibility and potential for savings.

Choosing a fixed rate provides certainty as it locks in the rate a borrower pays for a period of their mortgage. This is the safer option and is preferable for borrowers with lower risk tolerances.

Conversely, variable interest rates are uncertain, but they can save the borrower money if interest rates are low. Variable interest rates are preferred for people with higher risk tolerances.

Myth: You should always choose the lowest interest rate.

Reality: While low-interest rates can be attractive, it is important to also consider factors such as fees, loan features, and the overall cost of the loan over its lifetime.

A lender may advertise a low-interest rate that is counteracted by higher loan fees. Additionally, some home loans may lack the same loan features as other loans. This means although you are paying less on your loan, you may not receive the same support for your financial needs.

The additional fees and lack of loan features may result in higher overall costs, leaving borrowers paying more than expected.

Myth: You should always make extra repayments on your mortgage.

Reality: Making extra repayments can help you pay off your mortgage faster, but it is important to also consider other financial goals such as saving for retirement or emergencies.

Some people may opt to save money in their superannuation account rather than make extra payments on their mortgage as they would like the reassurance of having money when they retire.   It is important to have an emergency sum of money that can help in times of need. Some people may accumulate money for emergencies as it is a higher priority for them. These are factors that you need to consider before making additional payments.

A mortgage broker that can help

If you are in the market for a mortgage, One Click Life can help you save more on your home loan by choosing the right mortgage provider for you.

If you are not looking for a mortgage, One Click Life can also take care of your Taxes, Will, and Health Insurance. Claiming your tax return online is a simple process with One Click Life. The best part is you can claim your online tax agent fees back on your next tax return.