Common home loan misconceptions
With rules around lending constantly changing, new lenders coming into the market and people turning to family and friends for advice when it comes to buying a home and taking on a mortgage, it's hard to know what is fact and what is fiction. Take a look at these common misconceptions and how they can be explained to your clients.
1. It is best to borrow from the big four
This is not necessarily always the case. With hundreds of lenders available to choose from, it can be overwhelming and time consuming to compare what’s out there. Whilst banks are reputable by name and seen as the 'go to' option, they may not always offer the most competitive deal. This is where a mortgage broker can help by comparing different interest rates from a wide panel of lenders including the big four banks. Their lender relationships allow them to have access to exclusive deals and offers and allows them to look at the amount that can be borrowed with each lender depending on the different lending criteria.
2. I need a 20% deposit
A bigger deposit will look better on a loan application, and ideally that’s 20% of the purchase price. If the deposit is less than this or there is no deposit at all, getting a home loan is still achievable. The choice of lenders available for these situations definitely narrows and Lender’s Mortgage Insurance may need to be paid. In the case of no deposit, other property equity will have to be used or someone will need to go down as guarantor.
3. It’s cheaper to rent than to buy
With property prices continuing to rise, there is still a dilemma when it comes to the best option of either to rent or buy. Whilst renting can seem cheaper in the short term, it really does depend on what suburbs are of interest when it comes to purchasing a home as that can determine the size of your repayments. It's popular in today's market for buyers to remain in capital cities renting when they purchase their first home which is usually an investment property in a more affordable area.
4. The loan with the lowest interest rates is the cheapest
Yes, the rate is important when looking for a home loan, but often there are fees which are also associated with the loan and not factored into the interest rate. These can be for applications, monthly or annual services, establishment, legal and redraw fees. It’s best to also look at the comparison rate which sits alongside the interest rate and accounts for these fees and charges. Many cheaper loans also have lending restrictions around deposit sizes or particular properties which can be attached to the loan. A mortgage broker can be helpful when unsure about the terms and conditions associated with a loan as they are dealing with a number of different lenders on a daily basis and can help explain which loan would be right for your situation.