5 home loan misconceptions debunked

Photo by Mikhail Nilov

When it comes to buying a home in Australia, there are a lot of misconceptions about mortgages. Unfortunately, believing these misconceptions can lead to making bad financial decisions. That's why we've consulted a mortgage broker to debunk the five most common misconceptions about mortgages in Australia.

Misconception #1 : You need a 20% deposit to buy a home.

This is one of the most common misconceptions about mortgages in Australia. While having a 20% deposit can certainly make it easier to get a mortgage, it's not always necessary. Many lenders will accept a deposit as low as 5% of the purchase price. However, if your deposit is less than 20%, you may be required to pay lenders mortgage insurance (LMI). LMI protects the lender if you default on your loan, and it can add thousands of dollars to your mortgage.

Misconception #2: You should always go for the lowest interest rate.

While the interest rate is an important factor to consider when choosing a mortgage, it's not the only factor. Some mortgages with low interest rates come with high fees, which can actually make them more expensive over the life of the loan. Additionally, some mortgages with low interest rates have stricter terms and conditions, such as limited flexibility with repayments. A mortgage broker can help you find a mortgage with a competitive interest rate and favorable terms.

Misconception #3: Fixed rate mortgages are always better than variable rate mortgages.

Fixed rate mortgages offer a stable interest rate for a set period of time, usually between 1 and 10 years. While this can be beneficial for budgeting purposes, fixed rate mortgages often come with higher interest rates than variable rate mortgages. Additionally, fixed rate mortgages may have restrictions on making extra repayments or accessing redraw facilities. It's important to weigh the pros and cons of fixed rate and variable rate mortgages before making a decision.

Misconception #4: You should always stick with your current lender when refinancing.

Many people believe that refinancing with their current lender is the easiest and most cost-effective option. However, this may not be the case. By shopping around and comparing offers from different lenders, you may be able to find a mortgage with lower interest rates and better terms. A mortgage broker can help you compare offers from multiple lenders and choose the best option for your needs.

Misconception #5: You should aim to pay off your mortgage as quickly as possible.

While it's certainly a good idea to pay off your mortgage as quickly as you can, it's not always the best financial decision. If you put all of your extra money towards your mortgage, you may not have enough funds for emergencies or other investments. Additionally, if you have a low interest rate on your mortgage, it may make more sense to invest your money elsewhere where you can earn a higher return. A mortgage broker can help you create a repayment strategy that balances your mortgage repayments with your other financial goals.

There are many misconceptions about mortgages. By working with a mortgage broker and doing your own research, you can avoid making bad financial decisions and find a mortgage that works for your needs and goals.