Busting ten mortgage myths

Let’s debunk common home loan misconceptions.

  1. It’s not worth refinancing a mortgage for an improvement of half a per cent. If you have a $350,000, 30-year loan with an interest rate of 5.24 per cent, and you refinanced to a rate of 4.74, you would save $107 a month and $38,480 over the life of the loan. Is that worth it to you?
  2. I can’t refinance a fixed-rate loan. Not true. You can refinance a fixed rate loan but you’ll be hit with a break cost, which is compensation for the loss the bank will incur when you leave. Weigh up the break costs versus the potential savings and see what you come up with.
  3. I need a 20 per cent deposit. Many lenders will give you a loan with as little as 5 per cent deposit, although with less than 20 per cent you will have to get lender’s mortgage insurance (LMI), which some lenders will include in your loan.
  4. I want to use a mortgage broker but what about the fees? Mortgage broking fees are paid by the lender, not by you. A mortgage broker finds you the best loan at the most competitive rate.
  5. A competitive rate doesn’t really matter because the Reserve Bank controls home loan rates. The RBA adjusts the cash rate from time to time but each lender can change their rates as they see fit.
  6. Once I find a good rate, I’m sorted for the life of my loan. Lenders can move their variable rates at any time, so a loan that’s competitive today might not be competitive in the future. Take a look at your loan once a year.
  7. It doesn’t matter if you pay your loan monthly or fortnightly. False. A 30-year, $350,000 loan on a 4.74 per cent interest rate, would mean monthly repayments of $1,823.66. If you paid half ($911.83) fortnightly, the loan term would be 25 years and six months, and you’d save over $53,000 in interest. Weekly payments are even better!
  8. I’m too old to refinance my mortgage. Age discrimination is illegal. A bank looks at your repayment ability, so they’re looking at your income and the loan term. If you’re close to retirement, you can look at shorter loan terms or alternative exit strategies.
  9. Self-employed people pay higher interest. If you’re self-employed and can’t produce your tax returns, you may be offered a low documentation loan which can have higher interest rates. If your financials and tax returns are in order, you qualify for the same rate as a regular PAYG employee.
  10. Banks keep secret files on my credit history. Wrong. All lenders use a credit reporting system to check your history. Know what they know by finding out your history at www.mycreditfile.com.au.

My parting advice: be informed before signing anything and always communicate with your lender. Most lenders would rather find you a better deal than lose you as a customer.

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