01 Mar 2018

The Mortgage Traps to Look Out For

Mortgage traps

You’ve spent years saving up for a home loan deposit, and then you finally commit to a mortgage, which is not unlike a long-term relationship. It will need discipline and your focused attention to help pay off your loan as quickly as possible and own your home outright.

And just like any long-term relationship, it helps to be fully aware of what you’re getting yourself into. Knowing what traps to avoid upfront will smooth out your journey to homeownership in the long term. Here’s what to look out for when applying for your home loan.

Fees and charges

Don’t just look at your home loan amount but also take into account the other fees associated with your loan. Making a list of all the expected charges over the life of your loan will give you an idea of how much you’ll be paying in fees alone.

From the application and valuation fee to monthly account keeping fees and Lenders Mortgage Insurance (LMI) if you’re borrowing more than 80% of the property value, are just some of the costs to consider.

Early-exit fees, for example, could become significant should you wish to pay off your loan earlier or refinance with another lender. Always ask your potential lender for specific early-exit fees and costs.

Don’t simply take these fees at face value and you can try and negotiate to reduce any or all of these fees, but do it at the beginning, before taking on the loan.

Limitations on making extra payments or redraw

Knowing this at the start can make a big difference. Some loans will restrict you from making extra repayments into your mortgage account. This can work against you because any extra money you put into your home loan can reduce interest and help you pay off your loan faster.

While some other loans may let you make unlimited extra repayments but limit how much or how often you can redraw the extra payments you’ve made. Check how easy it would be to access your extra funds via redraw or if there is a fee for using this facility.

Honeymoon rates

Lenders will often offer what’s called ‘honeymoon rates’, which is a lower rate for a set period of 12 months. This may seem like an enticing proposition. It could, in fact, help give you a head start with your repayments but make sure you’re fully prepared for when the rate reverts to your set rate that can be much higher.

Loan add-ons that add to the total cost

There is no point in paying extra for home loan features you’re not going to use. That’s why it’s important to look at your individual needs, examine how the loan features work and think about which ones could be beneficial for you, before deciding on the ones you need.

Signing on the dotted line without negotiating

Lenders want your business and are often willing to work with you to tailor a loan to your needs. That’s why it’s good to remember that you could use this to your advantage and negotiate to get the best deal. Doing your research beforehand is important. Whether it’s a lower rate, better features or having fees waived, you could always try asking your lender to work out a better deal.

These are just some of the traps to think about and watch out for when shopping for a home loan. You may learn more from your network of family and friends sharing their personal experiences. After all, you do want to get the best deal possible that will save you money in the long-term.

Mortgage House

At Mortgage House, we’re no strangers to the homeowner’s journey. It’s a long (but rewarding) one.

But don’t worry, we can help with that.

If you’re thinking of buying a home, you can contact us for information about the best options for you when it comes to your mortgage.

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