HOME > BLOG > Home Loan Advice > 6 Mortgage Myths Busted

There are plenty of opposing opinions and stories floating around the mortgage market, so if you are looking to apply for a home loan it is important you get the facts straight.

There are plenty of opposing opinions and stories floating around the mortgage market, which can make it hard to decipher fact from fiction.

So, if you are looking to apply for a home loan it is important you get the facts straight. Take a look at the top 6 mortgage myths exposed below.

1. Only the credit card balance counts
Many borrowers get caught out with thinking that lenders will only assess the amount owing on a credit card, however this is not the case. When it comes to credit cards, your total credit card limit will be assessed, even if you don’t have any money owing on it. So, if you have credit cards that have a $0 balance and you don’t use it, cancel them. The fewer credit cards you have, the better your borrowing power.

2. Lenders mortgage insurance protects the borrower
Contrary to what many believe, Lenders Mortgage Insurance (LMI) protects the lender, not the borrower. This fee is put in place as a safety buffer for lenders in case you are unable to meet a repayment. You will usually only have to pay LMI if you borrow more than 80% of the purchase price and the more you borrow, the higher the LMI fee will be.

3. A deposit is all I need to save for
A home loan deposit is just one of several purchase costs involved. Many home buyers get caught other thinking that they only need to save for a deposit and have missed on a property as they did not have the funds to cover the other costs. The other purchase costs you will need to save for include:

• Pest and building inspections
• Lenders mortgage insurance (if you borrow more than 80% of the purchase price)
• Loan establishment fees
• Stamp duty
• Solicitor and conveyancer fees
• Moving expense

4. The lowest rate = the best home loan
Although having a low interest rate home loan can help save you money, it should not be the only factor you consider when looking for a home loan. The advertised interest rate could possibly come with other extras such as higher fees or less features. So, before choosing a home loan, take a look at your own financial needs and goals and see which product would suit you best. For example, if your goal is to repay your home loan as soon as possible, you might opt for a loan product with an extra repayment feature. Even if this loan has a higher interest rate, you will most likely end up saving more in the long run. Also, to get a more realistic view of how much you will be paying, take a look at the comparison rate as this includes all other fees.

5. A fixed rate is better than a variable rate
Similar to the previous myth, whether you choose a fixed or variable interest rate will depend on your own needs and goals. Although a fixed rate provides stability and can save you money if the interest rates rise, often the amount of flexibility is limited. For example, you may not be allowed to make extra repayments on the home loan or the extra repayment amount may be limited. Also, if you wanted to exit during the fixed period, it may be very costly.

6. I have assets so I don’t need an income
Although assets can help improve your borrowing power, you cannot be approved for a home loan on assets alone. Lenders need to see that you have a regular income source to meet the repayments. Your income will help determine how much money you are allowed to borrow.