Mortgages are considered a real pain by most homeowners, but in reality, can be utilised in ways to benefit the holder.
Let’s take a look at four common myths about mortgages and get straight to the bottom of them.
Myth #1 – You’ll have one mortgage for your entire life
The Australian Bureau of Statistics shows that up to February 2017, there are approximately 55,000 home loans currently held in Australia. This calculates to an average of $364,972 per home loan.
Due to the movement in Australian real estate market conditions over time, increases in income and lifestyle changes, the value of your mortgage should change as well.
This suggests that your current mortgage should only be held for around three to five years, in which it’s recommended to review it to suit future lifestyle circumstances.
Myth #2 – A low interest rate is the most important aspect
Oftentimes home owners will opt for a mortgage deal solely because it carries an incredibly low interest rate. They believe it is always going to benefit them for the long haul, however this couldn’t be more wrong.
Finding and selecting a mortgage option that suits your plans and lifestyle should be your primary concern, and should be priority one on your list of criteria – that is, before you start comparing interest rates.
Although a fixed loan may come with a lower interest rate, if circumstances change promptly and you wanted to sell within the fixed period, it’s likely going to cost you thousands to be released from the contract.
Loans with low rates generally offer significantly less flexibility in terms of features that could be useful or advantageous down the track.
It’s always better to look as deep and as detailed into your future financial goals as you can to avoid getting trapped into a seemingly good deal now.
Myth #3 – The frequency of your repayments won’t affect the amount
While most mortgage holders think that maintaining a stable monthly repayment schedule is convenient, they don’t realise that by switching to fortnightly or weekly payments can potentially save you tens of thousands – It’ll also cut years off your home loan!
Look at it this way:
There are 26 fortnights in one year. Halve your regular monthly payment and pay this amount fortnightly and you’ll end up making a month’s extra payment at the end of each year.
Last year the Commonwealth Bank released an article that included a money-saving example based on a common, $400,000 home loan.
It explained that someone with a $400,000 home loan with a 25-year term and a fixed rate of 4.9% could:
- Cut an entire 4 years off their mortgage, and
- Save around $60,000 in interest over that 25-year period.
Myth #4 – Don’t bother refinancing, it’s not worth it
You should be reviewing your mortgage on an annual basis. So, if it’s been a couple, or even a few years, it’s definitely worth looking into. Sometimes fees may be associated and a little bit of effort is required, however an experience mortgage broker can reduce a lot of your refinancing woes, making the process a little smoother.
Think about this:
If your interest rate was 0.5% lower than your current one, you could be saving over $43,000 on a 30-year, $400,000 loan!