BUST­ING FOUR COM­MON MORT­GAGE MYTHS

Take the time to un­der­stand your mort­gage and work out what your best long-term op­tions are.

Highfields' Own - - Real Estate -

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.

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