Mark Bouris: "When we're going for a loan, we often forget that we're actually giving business to the lender." Source: Supplied
OWNING your own home is often thought of as the great Australian dream and many people still want that plot of land (or airspace between apartment walls) to call their own.
But with home prices soaring, record low interest rates and stagnant wages, it's never been more important to make sure you get your mortgage right if you're on the home ownership journey, whether you're a first-timer or if you're thinking about refinancing.
Mark Bouris, executive chairman of Yellow Brick Road and a judge on Nine's Celebrity Apprentice, said people generally make mistakes with their home loans because finance is a topic people shy away from, often due to a lack of confidence in the area.
"Taking on a mortgage is the biggest debt we face in our lifetimes," he said. "So when we're going for the loan, we often forget that we're actually giving business to the lender. We concentrate on how hard we've worked on the deposit and then cross our fingers and hope we're approved. That's the first big mistake.
"The mistake is not being proactive about getting the best deal. There is so much choice out there and yet people will go to the bank they've been with since they got their first savings account and assume that bank is going to give them the best rate on the market, which isn't necessarily the case."
Mr Bouris argues that customers should realise they also have leverage — their business. So if you're looking at a mortgage, remember that your business is valuable and make the lenders work to get your business.
Home ownership is still part of the Australian dream. Source: ThinkStock
Research is the best way to make sure you're going to get the best deal. Have a look around at more than just the big banks because a lot of smaller lenders such as building societies and credit unions can have very competitive rates. When you know the landscape, you can use that knowledge to secure the best deal or negotiate for a better one.
Again, remember that the lenders want your business. Particularly if you have a big deposit and proven, good income coming in to make those repayments — that's more leverage in your corner.
Using a mortgage broker is one way to streamline some of the research as they will have access to a wide range of loans from different lenders and understand the home loans market. Mr Bouris' Yellow Brick Road outlets are holding a national 'Ask My Advice Day' tomorrow, August 16, for Australians looking for financial advice, including the best way to approach home loans.
Other than money, when it comes to getting a great home loan deal, knowledge is power so the more you know, the better you are placed to secure a good deal.
With that in mind, here are seven common mortgage myths busted, by Mr Bouris:
1. Everyone who has a variable rate loan is paying around the same interest.
"There is an almost 2 per cent difference in variable rate mortgages in the market. Using a 30-year, $350,000 loan as an example, the difference between 4.64 per cent and the average 5.2 per cent is savings of over $125 a month and nearly $43,000 over your loan term."
2. Refinancing is too expensive, and with exit costs it's not really worth it.
"Exit fees on variable rate loans were banned in 2011, so most Australians can refinance without getting hit with a hefty penalty. However break costs on fixed rate home loans are still applicable. Most mortgage brokers can analyse the life of loan savings versus the break costs for you."
Mark Bouris with Celebrity Apprentice winner Stephanie Rice. Source: Supplied
3. You need a 20 per cent deposit to buy a property.
"If you've got less than a 20 per cent deposit, you can still buy a property. In fact, many lenders will allow you to buy a property with as little as a 5 per cent deposit. However, if you're borrowing with less than 20 per cent deposit or equity, Lenders Mortgage Insurance may be required. Sometimes the cost of LMI can be included in the loan amount."
4. You have to pay a broker to lodge and handle loan applications for purchases or refinances.
"The majority of brokers don't charge any fees because they are compensated by the lender. This doesn't affect your interest rate or fees and can sometimes allow you to find a more competitive loan."
5. You'll be better off with a bank's special introductory interest rate.
"Lenders often use discounted, introductory or honeymoon offers to get customers in the door. Once the special rate is over, the revert rate is often much higher. So you don't get caught out, take a look at the comparison rate. It'll give you a better idea of what you'll be paying over the long term, not just the introductory period."
6. Once I find a good rate, I'm sorted for the life of my loan.
"Lenders can move their variable rates at any time and how they compare to other lenders can vary. Therefore a loan that's competitive today might not be as competitive in a couple of years time. It's ideal to review your loan every year or two to ensure that your rate is still competitive."
7. It's better to have cash for emergencies than use it to make extra loan payments.
"Just about all variable rate home loans have redraw access which allows access to those additional funds. Many variable loan accounts also offer an offset account which helps reduce home loan interest where the balance in the offset account is subtracted from the loan balance for the purposes of calculating home loan interest."
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