BUSTING FOUR COMMON MORTGAGE MYTHS
Take the time to understand your mortgage and work out what your best long-term options are.
Mortgages are much maligned, often seen as burdens rather than the useful tools that they really are. But that’s just because they’re misunderstood, says Ray White.
There are several myths that tarnish the name of the humble home loan.
Four of these myths have been busted to help you better understand your mortgage.
1. MYTH: YOU’LL HAVE ONE MORTGAGE TILL THE END
Busted: As of February, Australian owner occupiers held just over 55,000 home loans with an average value of $364,972, Australian Bureau of Statistics data shows.
That’s a rather large number so you’d be forgiven for thinking your current mortgage is going to be a 30-year commitment. But you’d be wrong. As market conditions shift, your income increases and your lifestyle changes, and so too should your mortgage.
That means your current mortgage may only be for four or five years, and
Monthly repayments are easy and convenient, but switching to fortnightly or weekly instalments could save you thousands or more in interest and cut years off your home loan.
that you should regularly review it to make sure it always suits your current situation.
2. MYTH: INTEREST RATE IS THE BE ALL AND END ALL
Busted: Selecting a particular home loan purely because it has a lower interest rate could be a serious mistake.
While saving a few dollars is always great, picking a mortgage that suits you and your needs is far better.
For example a fixed loan may have a slightly lower interest rate than a variable loan.
However, if you decide to sell within the fixed period you’ll most likely be charged a break fee of thousands of dollars.
Lower interest rate loans may also have less useful features that make your mortgage less flexible meaning they may be more difficult to pay off in the long run.
The moral of the story is, don’t be blinded by a super low rate and look at the loan as a whole before making any decisions.
3. MYTH: REPAYMENT FREQUENCY DOESN’T MAKE A DIFFERENCE
Busted: Monthly repayments are easy and convenient, but switching to fortnightly or weekly instalments could save you thousands or more in interest and cut years off your home loan.
That’s due to the simple fact that there are 26 fortnights in a year. If you cut your monthly payments in half and pay that amount fortnightly you’ll effectively make an extra month’s payments every year.
A July 2016 Commbank article provides an example of how much you could save on a $400,000 loan with a loan term of 25 years and a fixed rate of 4.9 per cent per annum.
By switching to more regular repayments you’d cut four years off your home loan and pay a whopping $60,000 less interest over the life of your mortgage.
4. MYTH: REFINANCING ISN’T WORTH THE TROUBLE
Busted: If you haven’t reviewed your mortgage in the last year or two, looking into refinancing is certainly worth the trouble.
There may be fees involved and the process can be difficult, however, with the help of an experienced mortgage broker you can easily minimise the costs and stresses of changing home loans.
Find an interest rate that’s just 0.5% lower than your current rate and you could save $43,397 in interest over the life of a 30-year, $400,000 loan. That’s nothing to scoff at.
With just a little knowledge you can use your mortgage as a tool to make home ownership easy and stress free.
Get in touch with a local mortgage broker to start improving your home loan and using it to your advantage.