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If you make a mistake and end up with a mortgage that doesn't suit you, it can be costly to change to something that does. So, before you sign the dotted line, make sure you know what you are getting in to and be aware of the common mortgage traps.

If you make a mistake and end up with a mortgage that doesn't suit you, it can be costly to change to something that does. So, before you sign the dotted line, make sure you know what you are getting in to and be aware of the common mortgage traps.


These can be a bit of a minefield so get all the facts straight when you are weighing up your options.

• Annual fee v’s no annual fee – sometimes these fees come with added benefits like reduced interest rate, credit cards and fee free increases. If the benefits are valuable to you then it might actually be worth incurring the fee. To compare different loans with different fee structures using your actual loan amount and term, use a calculator that gives you a personalized comparison rate. Key Facts Sheets are available for a lot of loans and will generate a personalized comparison rate. This will help put it all in perspective.

• Loan setup fees – a lot of loans don’t have application fees as such but can have setup costs which can equate to the same thing. Before proceeding make sure you get a full understanding of what you will be charged for when setting up the loan.

• Mortgage Insurance – if you are borrowing more than 80% of the value of the property then most lenders will charge mortgage insurance. As it is a significant cost, which can add to thousands of dollars, getting quotes from different lenders is wise. You may end up going with a higher rate due to the savings in mortgage insurance.

• Redraw fees – if the loan doesn’t come with an offset account and you wish to be able to contribute extra while still having access to it if you need to, then fees and restrictions around redraw may be worth looking at. Minimum redraws in the thousands or a fee to redraw, can be restrictive if you are wanting to redraw regularly.

• Paper statements – if you like to receive statements in the mail, make sure you won’t be charged extra for them. In trying to encourage people to choose to have electronic statements, some lenders charge a fee for paper statements and this cost could add up.

Pre Approvals that are not properly assessed

If you are about to purchase and get a formal pre approval from a lender, make sure you understand whether this has been fully assessed or not. Pre approvals may not be looked at as carefully by some lenders as the property is still to be found and may not be worth the paper it is written on. A formal pre approval that can be relied on needs to have credit checks completed, payslips and employment history examined and savings statements reviewed as part of the process. With a fully assessed pre approval, you can make an offer on a property and feel confident that your finance is in place, pending the property you find being acceptable.

Fixed Rates

With really attractive fixed rates around currently, it is tempting to lock in. Fixed rates do come with restrictions that you need to keep in mind. Always read the fine print and work out what you want to be able to do with your loan and how locking into a fixed rate might impact you.

• Ability to pay extra – a lot of fixed rate loans don’t allow you to pay extra during the fixed term, while others allow you to pay a certain amount extra per year. Some have offset accounts but the majority don’t. This can be overcome by dividing your loan into fixed and variable portions but needs to be considered carefully.

• Breaking the fixed term – if variable interest rates fall below the fixed rate, then to get out of the fixed loan you may incur break costs. Just like mortgage insurance these break costs can add up to thousands depending on just how much variable rates have risen. When rates were falling a few years ago many people who had fixed scrambled to break their fixed rate and revert to variable. Other situations may be a bit more out of your control. Marriage breakdown, relocating to another city for work or just receiving an amazing offer on your property may all mean that you want to sell the property. Fixing your rate may mean that you have to consider cost implications of breaking the fixed term.

• Ability to refinance – fixing your rate means that if a great mortgage deal comes along you may find it costly to get out. For this reason lenders offer very attractive fixed rates knowing that they are virtually guaranteed you remaining with them at least for the fixed term.

• Revert rate – going with a lender with very low fixed rates but not so competitive variable rates can be a risk. Once the loan reverts to variable, you may be looking to refinance to get a better variable rate. If you borrowed more than 80% of the value of the property, then refinancing may not be an option as you would have to pay it again. If you are borrowing less than 80% then you still need to factor in the cost of refinancing which will include discharge fees, setup costs for the new loan and government charges.

Choosing purely on interest rate

Some people shop around for home loans focusing purely on the interest rate. Apart from fees and restrictions mentioned above, other aspects should be considered. These include expertise, customer service and internet banking. If your situation is complex or if you don’t understand a lot about lending, having access to expertise may be important. The more you understand about the loan, the better equipped you will be to choose a loan and the more you will understand about the loan after it settles. Customer service is important and can be an ongoing frustration if it is poor. Check out review websites to understand how your prospective lender rates. Internet banking can be very fancy and allow you to do everything you need or can be basic but enough for what you need. Ask lots of questions around the type of transactions you will be likely to do. Then weigh up how much that functionality is worth.

By doing your research, finding the right home loan for you may take a little longer, but it could save you a lot of money and headaches over the term of the loan. State Custodians can help you navigate the home loan maze. Apart from our own loans, we have access to over 25 lenders and can explain the pro’s and con’s over a wide range of loans. If you would like to discuss your options, give our Lending Specialists a call on 13 72 62 or leave your details here and they will contact you.