If you think you’ve found a home loan that sounds almost too good to be true, unfortunately, it probably is. Here we look at some of the traps you should look to avoid in taking out a mortgage.
No such thing as a free lunch
In the mortgage market, you come to expect certain things. For example, if you have a small deposit, you’ll pay more over the term of the loan, that having a bad credit history is going to cost you or that certain loans have certain interest rates.
So if you’re offered a home loan that seems much better than normal, look closely at the fine print. Free lunches are as rare in home loans as they are elsewhere in life.
Interest rate fixation
Most people looking for a mortgage are preoccupied with finding the lowest interest rate. But have you considered all the fees and charges, and the account flexibility you need? You need to consider the entire cost of the loan – not just the interest rate.
Ignoring mortgage fees and charges
Don’t ignore any fees or charges linked to a home loan; you never know how your circumstances may change.
Upfront fees for taking out a loan and monthly fees are pretty easy to understand. But, are there other fees that you may incur? Will you be able to pay extra if you have a sudden windfall? Will you be charged if you decide to move or refinance your home loan? Can you increase your mortgage repayments?
Lack of flexibility
Different loans have different levels of flexibility. For example, offset accounts, internet banking, redraw facility.
Ensure your home loan has all the features you want and don’t get locked into a mortgage that will cost you if you change your mind.
Some property developers offer ‘vendor financing’. This may seem attractive because you don’t have to deal with a lender, or because they’re willing to give you a loan when others won’t. But be careful you’re not paying above market rates – for the property or your mortgage.
Not getting specialist help
The mortgage market is extremely complex, and getting what’s right for you is not as simple as finding the lowest interest rate. You need specialist help – the sort of help you get from us.
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Reproduced with the permission of the Mortgage and Finance Association of Australia (MFAA)
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