Sep
10


Five Common Mortgage Myths

Monday, September 10, 2012

Myth 1: Lowest interest rate loans are best
Unfortunately many borrowers will judge one home loan against another simply on the interest rate, which can be a big mistake.
If they make their decision on this "headline" rate, it could cost them tens of thousands of dollars extra, Resi Mortgage chief executive Lisa Montgomery says.
"Most borrowers don't look at the comparison rate but they must," Montgomery says.
"Check the comparison rate. It's a great rule of thumb that helps you understand at a glance the true cost of a loan.
"It includes all the upfront and ongoing fees that need to be paid during the course of the loan."
Fees and charges can add several basis points to the cost of the loan. Read the mortgage contract for all the details.
Myth 2: Bad credit ratings prevent borrowing
Your credit rating can both help or hinder the type of mortgage you are offered. If you have a poor record, it does not automatically mean you won't get a loan.
But it can mean a lender will consider you a greater risk and want to charge a higher interest rate.
Not all unpaid bills and default histories will stop you getting the best deal.
Mortgage broker 1300HomeLoan managing director John Kolenda says defaults on utility bills or phone bills can be explained and overlooked.
"But it is very important to make sure you tell your lender about your history," Kolenda says.
"Don't let them find out when they do your credit worthiness search."
Myth 3: Offset accounts are the best way to cut your interest
Financial research company Canstar analyst Mitchell Watson says there are much better ways to cut your interest costs than using an offset account.
"A lot of people will have their wages or salary paid into a mortgage offset account each month but for the average wage earner this isn't going to be worth much at all," he says.
"An offset account for someone on about $65,000 is only going to save about $20 a month interest. Over the life of the loan, however, it does add up to about $14,000.
"However, if you make fortnightly payments instead, so you divided the monthly amount by two and pay it every fortnight, you will save about $55,000 over the life of the loan and cut your loan term by four years.
"Better still, do both - use an offset (account) and fortnightly payments."
Myth 4: If you pay off your credit card, you'll be able to borrow more
Wrong. Even if you owe nothing on your credit card, the limit will still be counted towards your total potential outstanding debt, according to 1300HomeLoan.
"Your credit card limit affects your maximum borrowing capacity with some lenders. For that reason, you should reduce your limit or cancel the cards you are not using before applying for a home loan," Kolenda says.
Myth 5: Pre-approved loans are pretty much guaranteed money
This is not true, the experts say.
Pre-approval is an offer to lend money based on a percentage of the property's value.
The price you pay is not necessarily its value, Montgomery says.
"Always sign a contract of sale 'subject to finance' even if you have a pre-approval," Kolenda adds.
"Your valuation needs to stack up and you will still need final approval."
Myth 1: Lowest interest rate loans are best

Unfortunately many borrowers will judge one home loan against another simply on the interest rate, which can be a big mistake.If they make their decision on this "headline" rate, it could cost them tens of thousands of dollars extra, Resi Mortgage chief executive Lisa Montgomery says."Most borrowers don't look at the comparison rate but they must," Montgomery says."Check the comparison rate. It's a great rule of thumb that helps you understand at a glance the true cost of a loan."It includes all the upfront and ongoing fees that need to be paid during the course of the loan."Fees and charges can add several basis points to the cost of the loan. Read the mortgage contract for all the details.

Myth 2: Bad credit ratings prevent borrowing

Your credit rating can both help or hinder the type of mortgage you are offered. If you have a poor record, it does not automatically mean you won't get a loan.But it can mean a lender will consider you a greater risk and want to charge a higher interest rate.Not all unpaid bills and default histories will stop you getting the best deal.Mortgage broker 1300HomeLoan managing director John Kolenda says defaults on utility bills or phone bills can be explained and overlooked."But it is very important to make sure you tell your lender about your history," Kolenda says."Don't let them find out when they do your credit worthiness search."

Myth 3: Offset accounts are the best way to cut your interest

Financial research company Canstar analyst Mitchell Watson says there are much better ways to cut your interest costs than using an offset account."A lot of people will have their wages or salary paid into a mortgage offset account each month but for the average wage earner this isn't going to be worth much at all," he says."An offset account for someone on about $65,000 is only going to save about $20 a month interest. Over the life of the loan, however, it does add up to about $14,000."However, if you make fortnightly payments instead, so you divided the monthly amount by two and pay it every fortnight, you will save about $55,000 over the life of the loan and cut your loan term by four years."Better still, do both - use an offset (account) and fortnightly payments."

Myth 4: If you pay off your credit card, you'll be able to borrow more

Wrong. Even if you owe nothing on your credit card, the limit will still be counted towards your total potential outstanding debt, according to 1300HomeLoan."Your credit card limit affects your maximum borrowing capacity with some lenders. For that reason, you should reduce your limit or cancel the cards you are not using before applying for a home loan," Kolenda says.

Myth 5: Pre-approved loans are pretty much guaranteed money

This is not true, the experts say.Pre-approval is an offer to lend money based on a percentage of the property's value.The price you pay is not necessarily its value, Montgomery says."Always sign a contract of sale 'subject to finance' even if you have a pre-approval," Kolenda adds."Your valuation needs to stack up and you will still need final approval."





Comments subject to review.
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Estella said
"That is a beautiful shot with very good lighting ." about Women Consider Owning a Home to be a Vital Component of the American Dream
on Sunday, May 12, 2013 @ 9:57 AM

Chris White - Team Leader said
"Unfortunately you are not alone. It's more than an outcry. The powers that be really need to come down harder on Bofa than they already are. Working on these short sale for over 2 years now I've uncovered down right fraud happening on the lenders parts. If they cared more about moving this country forward than protecting their own wallets then they would cut the red tape and approve these short sales in a timely manner. Our team made the wise decision to get BofA loans which were FHA or Freddie Mac backed, approved prior to listing on the market. Then we can list the home as "Price Approved" and close in 30 days. In this instance BofA does a full appraisal, rather than an incompetent "Broker Price Opinion" (nothing against agents but they have no idea how to make adjustments on comparable homes) and then the bank issues an "Approval To Participate" letter which dictates what price we can go on the market and take anything north of 88%. I really do hope your situation improves. " about Congressional Bill to Speed Up Short Sales
on Tuesday, August 30, 2011 @ 9:15 AM

Lisa Zeiner said
"We made an offer 4 months ago to BofA, and have heard nothing. It was a cash offer which is better than the zero money they are collecting now. And since the people don't care they are trashing the place, by the time BofA gets around to it our offer will be gone as the place is a mess!! Septic issues now, garbage being dumnped. All of this could have been avoided if BofA really wanted to correct their cash flow problem and sell these properties in a timely manner. They cry about cash but then do nothing intelligent to fix the problem" about Congressional Bill to Speed Up Short Sales
on Tuesday, August 30, 2011 @ 9:06 AM

Jones Ramirez said
"Thank you for the work you have done into this post, it helps clear up a few questions I had." about How do appraiser’s determine a homes value?
on Tuesday, April 19, 2011 @ 10:07 PM

HollyRobsonf said
"Hey - I am certainly happy to find this. great job!" about Bank of America to Offer Principal Reduction to Underwater Borrowers
on Wednesday, April 13, 2011 @ 6:45 PM