Our guest author, Peta Short from Mortgage Choice, demystifies the 5 most common mortgage myths.
1 – Lender’s Mortgage Insurances protects the borrower!
The direct and straightforward answer is that Lender’s Mortgage Insurance (‘LMI’) protects the Lender – not the Borrower.
LMI is a one-off fee that home buyers who are looking to borrow more than 80% of their property’s value are required to pay.
It is simply an insurance that protects the Lender against the risks of providing a Borrower with a home loan in the event that a Borrower defaults on their repayments.
The higher the percentage of borrowings against the value of the house, the higher the perceived risk to the Lender, hence the requirement for LMI.
2 – Banks don’t like lending to single people!
Some potential borrowers wrongly believe that they will have trouble obtaining finance simply because they are single.
This is not the case. Lenders will happily provide finance to a single person if they have the ability to comfortably service a home loan.
The 2 considerations for a lender will be, firstly that the property values up properly to be adequate security for a loan and secondly, that a borrower has the ability to service the loan.
3 – The best rates are online!
This is a general misconception.
Whilst research on the internet or by other means will give you an indication of what might be the prevailing conditions applied by banks and other financial institutions, this will not always give you the best rates applicable at any particular time.
The plain fact of the matter is that Australia’s lenders are currently competing for business and are willing to offer significant discounts to borrowers.
Mortgage brokers have excellent relationships with many lenders and because of this they will be able to source borrowers the best deals for them – which might not necessarily be on-line.
4 – The best home loan deal will come from your current lender!
Many people look to get a home loan from their current bank or lending institution. They do this because they believe that this lender will provide them with the best deal.
This isn’t always the case.
Lenders do recognise loyalty – but it does pay for a borrower to shop around.
A borrower may have unique mortgage needs and this may mean that a borrower can actually find a better loan deal with another lender.
Above all – it pays to shop around to find the best deal for your needs.
5 – I can’t get a home loan because I’ve been bankrupt!
Credit defaults or bankruptcy will not necessarily disqualify a potential borrower for a home loan.
There are home loan options available for people with adverse credit histories.
The key is to be up-front about your financial history with your lender and your mortgage broker.
Being up-front saves time and potential embarrassment. Remember – if you have an adverse credit history then declare it early so that you have the best chance of obtaining the loan you want.
This information was provided by Peta Short. Peta is an owner-principal of Mortgage Choice – Hervey Bay/Maryborough. She is an experienced broker who can be contacted on 07 4124 7822 or by email at email@example.com