May 29, 2014
Exposing the myths you need to know before applying for a home loan
When thinking about how best to prepare for a home loan application the myths you might hear from a friend at a BBQ, or outright lies you might read in some deep dark corner of the internet can actually leave you worse off.
Not everything you hear or read is exactly true.
We regularly hear mortgage myths from our North Perth mortgage customers at their first meeting, so here are three of the most common myths straightened out for you.
1. ”Credit cards – the more the better” - Want to know the truth?
This is one of the most widely spread and most damaging of all the home loan myths we come across.
The general principal that you might of heard from a friend of a friend, is that if you have a few credit cards, the bigger the limit the better.
You might of heard that this will give you a better rating when the bank assess your home loan application.
When the bank looks at your credit cards they will take a 2-3% of the total limit of your card and use this figure as your monthly repayment.
Regardless of how much you owe on the card.
For example, where you might have a credit card with a limit of $20,000 and an outstanding balance of $100, the actual monthly repayment might be $10.
However the bank will assess your monthly repayment as $20,000 X 3% = $600.
The result is that even though you might never use the card, and only pay $10 per month in payments, the bank will assume your monthly repayments are $600, which is added to your other commitments when assessing your loan application.
You can see how with several cards they quickly add up, and could affect you ability to service the loan on paper.
The best way to avoid this is to close the credit card accounts you don’t use.
This is also true of any store cards where you might have an interest free deal a long time ago.
Solution, close the account and cut up the card
2. “Guess what, you can even add your car loan onto your mortgage!” - Less than ideal.
One of the other common myths that we hear about from our Perth mortgage customers is that financing a current car loan onto your home loan will allow you to save in interest.
Although you might be paying a higher rate of interest on that pesky car loan, the reality is that you will generally only be paying this for a short number of years.
Financing the car loan onto your 30 year mortgage might seem like you are getting a great deal on the interest rate, but the truth is that now you would be paying this back over 30 years.
The result is that in the long run you will be repaying a whole lot more interest than if you had of simply stuck with the original loan in the first place.
3) “The bank won’t find out about that unpaid phone bill” - Um, yes they will.
If you have any unpaid bills, or even any paid defaults, they will most likely be on your credit record.
This is one area where most lenders are very strict.
A patchy credit history can haunt you for a long time, and thinking that you can get away with having an unpaid parking fine or mobile phone bill is not going to happen.
Make no mistake; every lender will gain a copy of your credit report when you apply for a loan.
It will show any applications you have made in the past, any unpaid bills as well as any paid defaults.
However there are lenders that will look at your loan application depending on the severity of the default.
The best move is to be upfront with your broker when making the application.
That way they can delve further into the matter and if there is a legitimate excuse, the broker can let the lender know at the application stage.
Nobody likes to be lied to, so letting the lender know at the beginning will give you more chance than ‘hoping” no one finds out.
How you can avoid these and other mortgage myths
Making sure that you get the right advice when preparing to apply for your next home loan is critical, and although you might think you are getting the right advice, the best way to be sure is to deal directly with your mortgage broker.