You need a 20% deposit to get a home loan

There are home loan options available for borrowers with a deposit under 20%. Depending on the circumstance and lender chosen, a minimum 5-10% deposit is often needed to qualify. However, Lender’s Mortgage Insurance (LMI) will need to be paid at significant extra cost.

Mortgage brokers are expensive

Mortgage brokers help borrowers find the best deal for their own personal circumstance, so they must cost a lot right? Wrong. Their service comes at no additional cost to the borrower as they are paid by the banks.

I have bad credit history, so I can’t get a loan

Not all hope is lost. If there is good reason for the applicant’s poor credit history and evidence of it trending positively, then some lenders may service the loan.

I only need to compare interest rates (comparison rate)

With all the options in the market, shopping around for a suitable home loan can be tough. Applicants can be tempted to narrow down their selection through the different interest rates as an indicator of how much each product would cost them. However, the comparison rate is a better indicator of mortgage repayments with fees factored in.

Changing lenders is difficult

Difficult is of course relative, but refinancing a home loan to another lender is relatively easy, but it could come with some costs. The lender you are leaving may have mortgage discharge fees on top of the upfront costs you need to spend on the new application.

Borrowing from a big bank is always better

There is a preconceived notion that big banks are ‘safe’ and can offer borrowers the best rates. While they can perform to a certain standard, the only advantage they have over smaller lenders is the brand name. Choose a lender based on the merits of their service and product rather than blindly trusting past performance. With the proper research or the help of a mortgage broker, borrowers may find that a smaller lender may suit their needs more effectively than a big bank.

Loyalty to a lender is always rewarded

Solely because past performance was excellent, doesn’t mean future performance will hold up. Many borrowers fall into the trap of sticking to the same lender for years and years, thinking there is a benefit to staying with them. In reality, it may be quite the opposite and actually hurt their finances. On occasion, introductory rates are being offered to new applicants, but are not offered to existing loyal customers. In fact, households may find that the service will only start to pick up once they threaten to bring their business elsewhere.

Can’t just rely on assets, needs to meet all of their criteria

Applicants can’t rely on equity or a large deposit alone to secure a loan. Lenders require a holistic assessment of an individual’s financial situation to determine their serviceability for a loan.

LMI protects the borrower if default

LMI is insurance… but not for the borrower! It protects the lender in case the borrower defaults on their loan. Aussie households can avoid paying the sizable LMI cost by having a 20% deposit.

I need to avoid interest only loans

Principal and Interest loans are the most popular loan repayment type for good reason, as it brings Australians closer to the debt-free home ownership dream. However, Interest-Only repayments can be beneficial in certain circumstances. For example, if a household wants to free up short-term cashflow, they can opt for an IO loan to temporarily lower repayments.

Variable home loans are set by the RBA

The first Tuesday of each month signals another meeting by the RBA board, where they assess the current and future economic conditions, and make a decision on the cash rate. It’s a common misconception that the interest rate on your variable home loan is set by the RBA, but that’s not exactly the case. Their cash rate decision definitely impacts the changes, but it’s the lender that ultimately makes the decision.

Any advice provided is general in nature and should be considered in line with your financial situation, needs and objectives.