There are many items that can trip you up when purchasing a home, but there are also ones that can be avoided. If you are thinking of taking out a new home loan, then consider these four items before you potentially waste your valuable time and money.
Selecting a loan with the longest term
With 40-year loans available on the market, you may be tempted to extend your loan term in order to lower your monthly repayments. While the reduced payments could help with all the extras expenses that crop up when buying a home, the long term costs over the extended period could be substantial.
According to a report by Choice, “The difference between a 30 and 40 year term on a $300,000 home loan is $140,800 in extra repayments. Repayments are only $4.88 per day more for a 30-year loan – the equivalent of a daily large coffee."
What’s worth more to you – a daily coffee or $140,800? Take the time to discuss your loan alternatives with someone you trust.
Borrowing more than you can afford
A mistake to avoid when setting a budget for your new home, is to assume that your assets and income carry the same weight when servicing a mortgage.
Mark Bouris, CEO of Wizard Home Loans, says that “people often believe that a strong asset position can be a substitute for income when it comes to servicing a loan. But no matter what the strength of your assets, what really makes a difference is your capacity to repay the loan through a regular income.”
Let us help you to map out a realistic budget to help keep mortgage repayments in perspective.
Attempting to time the market
One of the most common questions potential homeowners ask when considering whether to get a fixed or variable loan is ‘are interest rates going up or down?’
In a research report in which Canstar analysed data from the last 20 years, they found that on average you would’ve called correctly the direction of future interest rates 50% of the time. In other words, most predictions end up as good as guesses.
Save yourself the stress of trying to time the market, and just get the loan that makes most sense for your situation, now and in the medium term.
Not doing your calculations before refinancing
While break fees have been banned on new loans from 2011 onwards, there are still other costs to consider. If refinancing your home loan cost you $1,200, but saves you $60 per month, it’ll take you 20 months to just to break-even.
Are you confident that your new lender will remain as competitively priced in the future? By all means, canvas your options in this competitive market but don’t fall for an attractive headline rate.
For more information on mortgage mistakes and how to avoid them, please contact us today.