As a professional Mortgage Broker and Australian Credit Licensee, the most common question I am asked is: “What’s the best rate at the moment?”
A better question to ask is: “When is the best time for me to get the lowest cost loan I can?”
The answer to this question is NOT “When you are buying your first home?” The CORRECT answer is “When you have owned your current home for at least 12 months and have built up equity.”
A natural time for many homeowners to shop for the lowest cost loan is when they are selling their current home and buying their next one. They are already going to have to arrange a new mortgage, so it’s a good opportunity to take advantage of the stronger position they are in compared to when they initially bought their current home.
When you buy your first home you are in your weakest borrowing position. You have no track record of home loan repayments and you have the least amount of equity.
This was certainly the case for me when I bought my first home, a 2 bedroom flat in Maylands, WA. I was happy to go with any lender that would help me with the small deposit I had and the First Home Owners Grant helping with fees.
Then as soon as you start to build some equity and a repayment history, you should be open to better alternatives. People often miss this and stick with their first home for many years and end up paying far more than they need to.
Key Point: Equity matters because the more equity you have, the safer the bank sees you as, and you can access special rates.
Having at least 12 months of repayment history proves you are a responsible person with a track record of meeting your commitments.
The greater your equity grows and the longer your track record, the better.
When combined with Advanced Mortgage Reduction Strategies we discuss in our book, you can really fast track your path to mortgage freedom by knowing when to refinance strategically.