Whether you are purchasing your very first home or even if you are refinancing your existing home loan, there are a few common mortgage traps that you should steer clear of! Pacific Finance Australia has made a list for you, to make sure you don’t become a victim of these drawbacks.
Top 5 Mortgage Traps
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Not being aware of all the options available to you
First home buyers – most people think it is best to just stick with your current financial institution for your home loan. However, your bank might not even offer a loan that suits your unique financial needs. It is vital to speak with a Mortgage Broker to find out all the options available to you, whether this is your first time buying a home, or even if you’re considering refinancing your current mortgage.
Homeowners – if you have already taken out a mortgage, it is easy to forget about it once everything is in place. Just like your health, your mortgage needs to be checked on an annual basis. The Australian home loan market is very dynamic and what might have seemed like a great deal a year ago, might not necessarily be the best option for you at the moment. You should always review your loan and make sure your current needs are being met.
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Only looking at the interest rate and not checking the comparison rate
Your interest rate is how much you pay your financial institution over the term of your home loan; while your comparison rate takes into consideration all of the additional fees involved with taking out a home loan. These costs include any monthly account fee, annual fee, establishment fee, valuation fee, mortgage documentation fee and settlement fee. It does not include external charges such as government stamp duty or conveyancing fees.
If you’re considering a home loan with a great interest rate, but a much higher comparison rate; it is likely to be these additional costs. Paying attention to your comparison rate is instrumental in knowing whether you are getting a good deal or if you are just falling into another mortgage trap.
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Not assessing your full financial situation
Not reviewing your financial situation properly could adversely affect your borrowing capacity. Having a Mortgage Broker do this for you is beneficial as they consider all your assets, any extra income you may have earned and even the equity in your existing property to get you the best deal tailored to your unique circumstances.
While having access to extra funds is always great, it is crucial to budget within your means. Just because a lender may extend a certain amount of credit to you, does not mean you should accept it. You need to make sure you can financially service the loan. Have your Mortgage Broker crunch those numbers to make sure will still be able to make your monthly repayments before signing on the dotted line.
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Honeymoon loans
As the name suggests, the honeymoon period of your loan is designed to draw you in by flashing the most competitive rates in front of you. If you are a first home buyer, this may seem perfect if you want to slowly ease into your loan. Honeymoon periods do have an expiration date and usually end 6 to 12 months into the loan. So be sure you are aware of what you have to pay after it has ended.
Even if you do want to ease into your mortgage, make sure your Mortgage Broker has found you a competitive rate even after the honeymoon phase so that you do not suddenly feel financially burdened.
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Not saving enough for a sufficient deposit
By not saving enough towards your initial deposit, your financial institution may classify you as a higher risk-borrower. This means they might charge you a higher interest rate or even additional fees to protect themselves in the unfortunate case that you default on your home loan.
Putting down a bigger deposit has several benefits. It gives you the power to choose your financial institution, instead of being stuck with a lender that will lend to you. It can also lower the mortgage insurance you have to pay and in some cases even eliminate it all together.
Taking out a home loan might seem overwhelming, especially if you are unsure of the procedures involved. This is why it is essential to have a Mortgage Broker on your side.
With a Pacific Finance Mortgage Broker, you will…
- be able to access over 30 lenders Australia-wide
- have access to the markets most competitive rates
- thoroughly have your financial situation assessed to get you the best deal
- receive a free review of your current loan to make sure you are in the best financial situation
- not experience the stress that comes with a loan as we make the process as seamless as possible
So, why wait? Don’t fall into the mortgage traps! Instead, seek the advice of one of our specialists by contacting us today! Call us on 08 9321 2120 or by sending us an email – info@pacificfinance.com.au