The priority for any first time mortgage seeker is home loans with low interest rates and this reason is obvious to us all. The approach is justifiable and can potentially save a considerable amount of money for the borrower's personal use over the life of the loan. Even if the mortgage is cheaper by 0.1%, it is likely that we will opt for that instinctively because of the amount of money this can save when we are talking about a $500K loan on a thirty-year mortgage! But this overly-simplified way of looking at home loans can be deceptive for mortgage seekers.
The home loan lending sector is one of the most competitive business sectors with a range of lenders competing for your business. This competition has led lenders to create an array of home loan products which might not reveal the true costs of borrowing a loan to the lender. Unravelling these traps for a first time mortgage seeker is difficult without the help of a professional home loan expert. AusFinance has helped many first timer home loan seekers in Sydney and across other states in Australia. Based on our daily experience of saving our clients from entering into ‘low interest’ home loans which are more expensive in the long run, here are the most common pitfalls that you should lookout for before signing up for a low interest rate mortgage:
- Advertised Interest Rates
Mortgage interest rates on advertisements might look attractive but after applying for the mortgage, a borrower may not qualify for the advertised interest rates. Interest rates can change depending on the market and your financial situation and the interest rates advertised might not be the same as what you have access to in the loan. An experienced mortgage broker can recommend mortgages with the best interest rates for you available from a host of lenders not just ONE lender so and a broker can explain to you the actual rate you’ll be paying.
- Undisclosed Service Fees
Interest rates are usually considered crucial for borrowers to decide the best home loan but borrowers often forget to include service fees that are associated with the mortgage, such as closing costs, that are charged by the lender and third parties. Some of these may include a credit report fee, loan origination fee, attorney's fees, home inspection fees and more.
These are areas where your lender could make up for the low interest rates that they provided for the mortgage and make the loan less attractive than what you may expect. You should consult with the lender and understand all of these costs.
- Qualifying Loan Type Vs Advertised Loan Type
Mortgage interest rate differ according to the type of mortgage loan depending on the loan period and your financial profile. If the advertised mortgage interest rate is for a 20 -year fixed rate and your financial situation suits a 30-year fixed mortgage, then you might not get the rate you were originally expecting. A quality mortgage broker can assess all of these variables for you and consult with a range of lenders to recommend the best possible product based on your individual situation.
- Property Use
Mortgage interest rates differ on the basis of how you are going to use your property. Interest rates vary depending on whether it is an owner occupied mortgage or if the property is going to be used as an investment. This difference can also affect the amount of tax your purchase will be liable for.
- Credibility: Yours, Lenders & Broker's
Credibility of the borrower, lending institution and the mortgage broker working on your loan greatly affects the interest rates that you could qualify for. You could be entitled to a better interest rate if your credit rating is excellent. Similarly, all big banks are not always preferable and small lenders are not always to be avoided - you should be doing the research on your lenders credibility before choosing a home loan. If you are using a mortgage broker, you should trust that they are able to provide you with the best possible rates for your situation and are capable of assisting you to navigate through the home buying process.
Mortgage interest rates can be complicated and there are many factors which impact your rate, such as the credit rating, the purpose of the purchase, the credibility of the lending institution and on the mortgage broker you are working with. Even if you qualify for a mortgage with lower interest rates, you might be charged steep fees that could make the mortgage costlier.
To avoid getting trapped into a bad mortgage deal, the best thing you should be doing is to do ample research on the available options in the market, comparing the features of the mortgage with various lenders and understand recurring and non-recurring fees. Or alternatively - talk to a mortgage broker at AusFinance and relax while we do the legwork for you. Go on - drop us a line and we will get back to you with your best rate!