How to Avoid Common Mortgage Mistakes? 7 Pro Tips

How to Avoid Common Mortgage Mistakes? 7 Pro Tips From the Experts

You decided to take the plunge into home ownership in Australia. Now comes the tricky part – navigating the mortgage process without making any costly mistakes.

As a homeowner, you only get one shot to get your mortgage right. Make the wrong move and you could end up paying thousands in unnecessary fees or saddled with a loan that doesn’t suit your needs.

The good news is the experts are here to help. We tapped some of Australia’s savviest mortgage brokers and bankers to get their insider tips for sidestepping the 7 most fatal mortgage slip-ups they see borrowers make every day.

Follow their pro advice and you’ll breeze through the mortgage maze, land the perfect loan for your budget, and be well on your way to turning that house into a home.

The Australian dream was realized – without the nightmare part. So grab a cuppa, sit back, and let the experts show you the path to mortgage success. Your new home awaits!

1. Not understanding your credit score

The biggest mistake Aussies make is not knowing their credit score before applying for a home loan. Your score determines your eligibility and interest rate, so do your homework. Check your score for free on a site like CreditSavvy at least 3-6 months before house hunting.

If there are errors on your credit report negatively impacting your score, dispute them right away. It can take time to resolve, so the earlier you start the better.

Most lenders want to see a score of at least 600 but aim higher. Pay down balances on credit cards and loans to increase your score over time through ‘good credit behavior’. Every point counts when interest rates are on the line!

2. Failing to hop around for rates

When buying a home, the interest rate is one of the biggest factors determining your repayments. Yet too many Aussies fail to shop around for the best deal, sticking with their same old bank out of habit.

Big mistake. Rates can vary by up to 1-2% between lenders, which translates into thousands per year for a typical mortgage. Make the effort to check rates from at least 3-4 other major banks and a few non-bank lenders. Compare their rates for your specific loan amount and term.

3. Not factoring in closing costs

Many homebuyers, especially first-timers, underestimate the true cost of buying a house. Closing costs, also known as settlement fees, are the expenses incurred when finalizing your mortgage.

These often surprise buyers when the bill comes due at settlement. Be prepared by factoring in closing costs upfront to avoid last-minute surprises that could derail your home buying plans.

Do Your Research

Educate yourself on the typical closing costs in your area. Fees vary but usually total 2-5% of the purchase price. Major costs include:

Stamp duty: The largest fee, charged by the government as a property transfer tax. Rates depend on property value and location.
Legal fees: For conveyancing to handle the paperwork. Allow $1,000-$3,000.
Lender’s fees: Appraisal, application, and valuation fees charged by your lender. Around $500-$2,000 total.
Title fees: Covers title search and insurance to protect against unknown title claims. Around $500-$1,500.

4. Taking out too cuch or too little

Taking out too large or too small of a mortgage for your needs can be a costly mistake. When determining how much you can afford to borrow, be realistic about your current and future financial situation.

Taking on an oversized mortgage often means higher interest charges and the risk of payment difficulty if your situation changes. Make sure your repayments don’t exceed 30% of your total income. Consider potential lifestyle changes like having kids or a job loss that could impact your ability to pay. It’s better to borrow less now and refinance for a lower rate later.

5. Signing up for features you don’t need

When signing mortgage paperwork, it’s easy to get caught up in the excitement and end up with expensive features you don’t actually need. Watch out for these common slip-ups that could cost you down the road.

Add-on fees
Interest-only periods
Fixed rates
Additional security

6. Being too loyal to your childhood bank

Many Aussies grew up banking with one of the big four: ANZ, Commonwealth, NAB, or Westpac. While loyalty is an admirable quality, it can cost you when it comes to your mortgage. The bank you’ve been with since you were a kid may not actually offer you the best deal or service.

Before signing on the dotted line with your childhood bank, shop around at a few other lenders. Compare their interest rates, fees, and loan features. You may find another bank that offers a lower rate, saving you thousands over the life of your mortgage.

Or you may discover a lender with more flexible repayment options or a better customer service reputation.

7. Avoiding fefinancing your home loan

As tempting as it may be to refinance your mortgage and lock in a lower interest rate, it’s not always the smartest financial move.

Refinancing comes with fees and charges that can end up costing you more in the long run. Here are some tips to help determine if refinancing your home loan is really worth it:

Do the math. Calculate how much you’ll pay in refinancing fees versus how much you’ll save each month with the lower rate. If the fees outweigh the savings, refinancing probably isn’t worth it.
Check your loan term. Refinancing to a shorter loan term, like 15 years instead of 30 years, means higher payments but paying the loan off sooner. Make sure the higher payments still fit your budget.
Negotiate the best deal. Shop around at different banks and lenders for the lowest interest rate and refinancing fees. See if they’ll waive or lower some fees to win your business.
Consider your timeline. If you plan to move or sell your home within a few years, refinancing may not save you money in the long run after paying all the fees. Stick with your current loan.
Look into alternatives. You may be able to modify your existing loan by extending the term to lower payments or switching to an interest-only loan. These options have lower or no fees compared to a refinance.
Pay down debt first. Rather than refinancing, put extra money each month toward paying down high-interest debts like credit cards. Once other debts are reduced, refinancing your home loan may make more financial sense.

Conclusion

You’ve got this, Armed with these insider tips from the pros, you’ll be well on your way to navigating the mortgage maze without stumbling into one of those fatal slip-ups. Keep your eye on the prize, focus on the essentials, and don’t get bogged down in the small stuff.

Do your homework, find a broker you connect with, and make sure you understand all the terms and conditions before you sign on the dotted line.

With the right knowledge and the right team in your corner, you’ll be kicking back to your new place in no time. The keys are as good as yours! Now get out there, keep calm, and mortgage on.