For many homeowners, it’s easy to get caught up in all of the excitement, and stumble into one or more of these embarrassing mortgage mistakes. Unfortunately I see it very often.
Getting a Standard Variable Rate loan:
Banks love nothing more than putting customers into a Standard Variable Rate. They heavily promote the extra flexibility and offset facility. The reality is it is very rarely worthwhile for the average customer to pay the higher rate for the extra features.
Even if you have a large amount of money to put in an offset account, you could achieve much the same thing with a basic loan with a redraw facility and pay a much lower interest rate.
If you want a fully featured loan, compare the costs of these extra features to the lender’s cheaper products. Or better yet, push for a liefetime discount package on the standard loan and get the best of both worlds.
There’s an old saying – ‘if it sounds too good to be true, it probably is’. This is the best way to describe ‘Introductory Rate’ home loans. Don’t get me wrong, there are some great offers out there, and a low rate in the first year or two can make all the difference to your weekly budget. But to avoid future pain, it’s best to base your comparison on the rate that you will pay when the honeymoon is over.
Part of the loan application process is to work out what you can afford to repay, based on current interest rates. But did you consider what would happen to your budget if interest rates were to increase? Many Australians have been caught out in the past, with disastrous consequences. The best way to avoid becoming one of these cautionary tales is to be mindful of both your purchase price, and the impact that future rate rises will make on your loan repayments.
It was a long and difficult journey to save that deposit. You might have taken on extra work, missed out on overseas travel, avoided fine dining or sacrificed your cable TV. But now is not the time to let your hair down – especially if you haven’t reached your settlement date. After you hand over the deposit, you’ll still need to ensure that you can cover stamp duties, conveyancing fees and moving costs. For the unlucky few, there could even be unexpected maintenance costs after you settle. (It’s funny how the hot water service always seems to hang in there until the worst possible moment). So try to keep your good money habits going a bit longer.
Don’t blow the budget:
Most of us take the time to think about how much we want to spend before we start making an offer on our next home, or gesturing wildly at an auction. But sometimes we get carried away and don’t want to risk missing out on our dream home. So who really wins in this scenario? The vendor and the real estate agents of course! Not the proud new home owner, who has just committed to a purchase price and mortgage that he can’t really afford.
Just like electronics and furniture, when it comes to a mortgage you get what you pay for. There are some very cheap (and nasty) options available to borrowers. Some of these might seem appealing but it’s important to consider the features that you need in a loan – today and a few years down the track.