It’s no secret that the world of home loans can be intimidating, complex and just plain annoying to navigate, leading to many homeowners making decisions they regret later down the track. Whether these common mortgage mistakes are made due to ignorance, frustration, naïveté or any number of variables, the fact remains that there are some common themes we tend to see between mistakes.
Read on as we go through the most popular mortgage mistakes we see among first home buyers, so you know to look out for them and avoid them.
Mistake #1 - Listening to the wrong people
As mortgage brokers, we’ve seen time and time again all the different opinions and (sadly, often ill-informed) advice inflicted upon first home buyers by well-meaning friends and family. While everyone may want the best for you, those who aren’t professionals or in the industry may be imparting biased views, often based on their own anecdotal experiences or media they’ve consumed. While much of the information out there is valid, it may not necessarily be your most accurate source of truth – that’s why here at Intuitive Finance, we always recommend seeking advice from industry professionals who have a good grasp on the current market applicable to your situation.
Mistake #2 - Selecting the wrong loan structure
Whether looking at fixed versus variable, a basic loan or an offset account, at the end of the day you will have a number of options depending on which route you go and what your home loan goals are. It’s always best to consult with your mortgage broker about your unique circumstances and financial situation to design a structure that best suits your lifestyle, intended future goals, and more.
Mistake #3 - Chasing the lowest interest rate
At the end of the day, product cost will always be a primary factor in our choice of whether to purchase something or not – but it’s not the only feature of a product, and the same is especially true for home loans. Looking for the lowest interest rate while ignoring other factors like the home loan structure is a definite mortgage mistake, so don’t get sucked in by suspiciously low interest rates without questioning why they’re so low first.
Mistake #4 - Not factoring in a home loan buffer
In the same way that we like to have emergency funds or a small cushion of savings in our day-to-day lives, hidden or unexpected costs can similarly spring up during the home buying and home loan process. Any mortgage broker worth their salt will emphasise the importance of a home loan buffer, AKA a fund that allows you to ensure your repayments are covered in the event of something happening like losing your job. Whether you achieve this by making additional repayments to get ahead of your home loan, or using an offset sub-account, the added safety net can do wonders not only for shortening your time spent paying off your mortgage but also for your peace of mind.
Mistake #5 - Making interest-only repayments because that’s all you can afford
This one speaks for itself. Getting caught in the trap of paying interest-only repayments, rather than principle and interest repayments, means more interest payable over the life of the loan. This option means you will experience higher repayments once the interest-only period finishes, a higher interest rate during the interest-only period, and also the fact that the principal amount won’t reduce during the interest-only period. Overall, there are a lot more sunken costs with this option. While there may be some benefits to the interest-only repayments journey depending on your circumstance, like perhaps you are taking some time off work to be a primary carer and your ability to make repayments is limited, or you are seeking particular tax benefits for investment loans, it’s generally advisable that you forsake taking this route if you can avoid it.
Mistake #6 - No overall strategy
All too often, we are driven by emotion and idealism when we shop, and the same can be true even for long-term purchases like homes and home loans that require a lot of mental processing and consideration. The best way to combat this and avoid being influenced by your emotions is to devise a sensible and realistic long-term strategy for your home buying journey. This is particularly important for first home buyers who are traversing the home loan field for the first time – working with your mortgage broker closely to design a strategy that works for you will save you the most money and stress in the long term.
Ready to get some professional advice? As industry leaders, Intuitive Finance can offer you guidance from award-winning brokers to help you navigate the best home loan option for you. Book a call with us today to learn more.
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