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Often the best way to learn is from is from your mistakes, , so we’ve gathered together a list of costly mistakes we quite often see borrowers make.
Here are our top 5 money-draining mortgage errors – and tips on how to avoid them.
Mistake # 1 – Only thinking of the interest rate
It’s great to find a loan with a low-interest rate but not at the expense of other fees and features.
You can cancel out the benefit of a low-interest rate if there are a significant number of extra fees added to the loan. Consider the cost of application fees to set up the loan, discharge fees to pay out the loan in full, fees to use a recharge facility, as well as property valuation and lenders mortgage insurance fees.
Some introductory home loans offer low honeymoon interest rates. When the promotional period is over – usually between 6 months to 2 years – they revert to a higher rate for the life of the loan.
For a clearer picture of the true costs of a home loan, look at the comparison rate. This rate adds together the interest plus certain fees and charges that may apply to the loan.
Also, consider your personal situation and what features – like redraw, offset and flexible repayment periods – might help you save. An offset account, for example, reduces the interest payable on your home loan. It provides considerable savings if you can maintain a large sum of money in your offset at any one time.
Mistake # 2 – Underestimating all the costs
There are many costs involved with purchasing a property. Borrowing costs aside, you need to have funds ready for building inspections, stamp duty, legal advice and insurance. Adjustments made at settlement like land tax and utility charges are an extra cost to plan for.
You may have the option of adding stamp duty and Lenders Mortgage Insurance (LMI) onto the principal of the loan. While this will help you cope in the short term, it means you’ll pay more interest long term.
We have you covered on all stages of your property journey
Mistake # 3 – Taking out a fixed term without planning ahead
The cost of breaking a fixed term interest rate home loan is substantial. For this reason, it’s essential you fix for the right reasons.
Forward planning will help you anticipate whether fixing is for you or not. Think about whether you’ll want a bigger home as your family grows? Are you likely to move interstate or overseas with your job in the next few years? Are you going to want to make additional repayments?
A fixed rate mortgage can save you thousands of dollars in interest repayments but cost you considerably more if you ever need to break it.
Mistake # 4 – Not taking out adequate insurance
Home building insurance is usually compulsory during the settlement period, but borrowers don’t always continue with it long term.
Without insurance, you risk significant damage to your hip pocket. Remember,
- Building and Contents insurance protects you against things like fire, theft or water damage.
- Landlord Insurance covers you against public liability and lost income if you rent out your property.
- Income Protection or Loan Protection insurance covers your home loan liability in case any unforeseen event disrupts your income.
Mistake # 5 – Relying on home loan comparison sites
Searching for a home loan takes considerable time and effort. Few people have the time to visit dozens of lenders or read the details of the hundreds of products on offer.
Sure, home loan comparison sites are a great way to create a shortlist, but they give you a starting point only. This limited scope can end up costing thousands of dollars when you take out a loan that doesn’t meet your needs.
Working with a mortgage broker improves your chances of getting a loan that works for you. Yellow Brick Road mortgage brokers have access to a large network of lenders, enabling us to secure competitive products suited to you. We stay up-to-date with new promotions and regulations and you’ll find us a great source of information for all things home loan.