At the last Government survey of Income and Housing in 2015/16,it was found that 67% of Australians owned their own home, either outright or owners with a mortgage. (Source: Wikipedia, May 2020, Home ownership in Australia).Successive governments in the country have encouraged home ownership through a number of tax incentive schemes but in the 2016 Census, the number of homeowners dropped by 2%.Could this be because there are a number of common myths about home loans that are putting people off? Let’s dispel these myths once and for allso that you can speak to your mortgage broker in Melbourne and make the first step on the property ladder.
- You need 20% of the property value as deposit
There is an assumption that buyers have to save for at least 20% of the cost of the property to put down as a deposit before a home loan can be secured. As people strive to save this amount, property values are increasing, and it can seem to be a Catch 22 situation in that you will never have enough to start the loan process. It is important to seek advice from an independent mortgage broker company who can advise on this.
- Fees are too expensive to use a broker
The mortgage broker receives their fees from the lender, which means they are there to ensure you get the best possible competitive rate to suit your personal circumstances and budget. The mortgage broker, can review all the available options open to you, give you impartial advice to allow you to decide which type of home loan suits your finances and explain the variances between choosing the right loan features for you.
- Rates won’t be competitive- the RBA has this locked down
The Reserve Bank of Australia has to review and change interest rates depending on the state of the current economic climate and growth; however, lenders do have the flexibility to change their rates independently of the RBA. Of course, their rates will reflect the RBA’s but they are in a competitive market so rates will fluctuate but this is where your mortgage broker can keep you well informed.
- Lowest interest rate is always best
Home loan packages have changed a lot over the years and while the lowest interest rate may seem the best one to choose, it could incur other fees. It also may not include other interest saving factors which an offset account, with slightly higher interest rates, could offer. Discussions with your mortgage adviser will help identify the different offers available to you on the market currently.
- Locked into a loan for life
Even when you get the best possible competitive rate for your home loan, interest rates can go down as well as up. A lender can move their variable rate when they want to, and it could be there may be a better deal further down the line. This is where it is important to have at least an annual review with your mortgage broker to see if there is anything else you are able to do with your home loan. Even if the interest rates stayed the same for a year or two, your personal circumstances may have changed, and you want to increase your payments to reduce the loan. An annual “health check” should be booked into your diary to review these finances.
- Too old to get a loan
Discrimination on the basis of the age of a borrower is illegal, the only figures a lender is going to review is not on your birth certificate, but on your ability to repay the loan. For those who are nearing retirement, when your income changes, discuss shorter loan terms available or other exit strategies.
- I am self-employed so interest rates will be extortionate
As with any borrower, you will need to produce your tax returns as part of the documentation that a lender will expect to see. If you cannot provide these then you could discuss a low documentation loan which may have higher interest rates. Otherwise, if your tax returns and finances are in good order then you would qualify for the same interest rates as any other employee.
- Monthly repayments are better value than fortnightly
This is not the case and if your finances are such that fortnightly repayments work for you, discuss this with your mortgage broker. You could save a lot of money in interest rates by making fortnightly repayments because this would reduce the loan term, so ask your lender to work out a number of repayment scenarios.
Speak to a trusted mortgage broker in Melbourne and get the right advice before signing on the dotted line.