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Debunking common home loan myths: What you need to know before you apply

Jun 8, 2023 | Finance, News and Updates, Property Investing, Purchasing Property

Obtaining a home loan is a significant financial decision for many Australians. However, there are several common myths and misconceptions surrounding the home loan process that can lead to confusion and potential mistakes. In this article, we will debunk some of these myths and provide you with essential information to consider before applying for a home loan in Australia.

Myth 1: Only banks offer home loans.

Fact: While banks are a common source of home loans, they are not the only option available. Other financial institutions such as credit unions, non-bank lenders, and mortgage managers also provide home loan products. It’s crucial to explore different lenders to find the best loan terms and interest rates that suit your needs.

Myth 2: You need a 20% deposit to get a home loan.

Fact: While a 20% deposit can help you avoid paying lenders mortgage insurance (LMI), it is not a mandatory requirement for obtaining a home loan. Many lenders offer loans with lower deposit requirements, such as 5%. However, having a larger deposit can help you secure a better interest rate and reduce your overall borrowing costs.

Myth 3: You must have a perfect credit score to qualify for a home loan.

Fact: While a good credit score is beneficial when applying for a home loan, it’s not the sole determining factor. Lenders consider various factors, including your income, employment history, debt-to-income ratio, and overall financial situation. Even if you have a less-than-perfect credit score, you may still be eligible for a home loan, although you may face higher interest rates or additional requirements.

Myth 4: Fixed-rate home loans are always the best option.

Fact: Fixed-rate home loans offer the advantage of rate stability and predictability, as the interest rate remains fixed for a specific period. However, variable-rate home loans can sometimes provide more flexibility and a potentially lower interest rates. The choice between fixed and variable-rate loans depends on your personal circumstances, risk tolerance, and the prevailing market conditions. Consulting with a mortgage broker can help you make an informed decision.

Myth 5: Switching lenders is too complicated and not worth the effort.

Fact: Many borrowers are hesitant to switch lenders due to the perceived complexity involved. However, refinancing your home loan can potentially save you thousands of dollars in interest payments over the loan term. With proper research and assistance from professionals, switching lenders can be a relatively straightforward process. Consider comparing loan offers from different lenders periodically to ensure you’re getting the best possible deal.

Understanding the facts and dispelling common myths surrounding home loans is essential when navigating the home loan market.

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