Below are some of the most frequent mortgage mistakes borrowers make and how to dodge them.
Asking many questions should always come before borrowing money to buy property.
Most important, if you wish to avoid mortgage mistakes is to look at your own circumstances. Are you a first home buyer, refinancing, investing or upgrading? Once you are aware of your situation, you can then start to set goals.
There are literally hundreds of mortgage products in the market today. Understanding what type of borrower you are will set you up to obtain the most suitable product.
Let’s look at five common mistakes borrowers regularly make.
1. Set and forget
By not reviewing your mortgage on a regular basis or limiting yourself to one lender’s products can be costly. Being loyal to one bank, which may have four or five is limiting yourself to a very small portion of the market.
Speaking to your local broker may open you to have a choice of up to 50 different products that match your needs. It is important to regularly ask if your mortgage is still cost effective.
There may be costs associated with refinancing but usually these costs be can recovered in a short timeframe particularly if you are getting a better interest rate.
2. Selecting a mortgage simply for its interest rate
Home loan interest rates are dominating the media at the moment and they’ve reached record lows. Choosing a mortgage simply because its eye-catching rate is lower than its competitors can also have its disadvantages.
Home loan features should be the main objective for borrowers and how well they suit personal circumstances. Pay attention to comparison rates, which take into account any honeymoon rates, discounts and ongoing fees. Comparison rates show a far more accurate picture than purely looking at an advertised rate.
3. Be prepared
Information is a key factor for borrowers as is having the relevant and organised paperwork at hand and is also a crucial factor in assessing home loan applications.
Research has shown that applicants who present with orderly documentation often find the process smoother and faster, and are more likely to proceed and be successful.
For self-employed borrowers, you do need to keep a track of paperwork and have details of your financials and all the supporting documents ready when sitting down to formally apply for a mortgage.
4. To Fix or not to Fix
Fixing your interest rate can cost you thousands of dollars if you need to break it. It’s a good idea to weigh up the pros and cons before locking in your rate.
Fixing your mortgage interest rate can be beneficial for those who seek assurance for budgeting reasons. On the other hand, trying to predict where interest rates may be over a longer term can be quite costly
5. Pre-approval is a good idea
Obtaining a pre-approval in writing from your lender is a good idea. Don’t just presume that you will be ok with finance when bidding for a home.
You can easily create an indicative lending figure from any of the online calculators that are readily available, however there is a lot more information that the lenders require prior to formally approving your loan.
Borrowers often think they can afford a property based on the many accessible web tools then get into trouble when they come to buy and go back to their lender and find they cannot obtain the finance.