8 Mortgage Mistakes That Will Cost You Money

The interest rate isn’t the only thing you need to consider when looking at mortgages. You also need to consider the question “what are the additional costs involved in buying property?” If you don’t, you set yourself up to make some terrible mortgage mistakes.

What questions do you ask yourself when you search for a mortgage? “How much can I afford to spend on a property?” may be the big one, but it’s not the only question to consider. Beyond asking questions of your home loan provider, you also have to think about how you will manage if your life changes. Marriage, divorce, and a host of other personal issues can affect your ability to repay a home loan. Do you know what you’re going to do if such a situation arises?

Many people don’t, which is why so many make mistakes when looking for mortgages. They end up with products that don’t actually suit their needs. Instead of having a great mortgage that they can pay off quickly, they end up spending thousands more dollars than they need to.

So what are these mistakes, and how can you avoid them? Those are questions that this article aims to answer.

Mistake #1 – Not Checking the Mortgage Regularly

Getting a mortgage is an ordeal, so it’s understandable that people don’t want to go through it again once they’ve secured their home loans. After all, you can only ask yourself “what are the additional costs involved in buying property?” so many times before the question becomes too much of a burden to face.

As a result, many people make the mistake of not checking their mortgage regularly. They just go with what they have, and stay loyal to their current lender.

The simple fact is that there are hundreds of mortgage products in Australia. The odds are high that one of them meets your needs better than your current mortgage.

Check your home loan against the newest products on the market at least once every couple of years. You may find that another lender offers a superior product with more features and a lower interest rate. Switching at an opportune time could save you thousands of dollars on your mortgage. Unfortunately, many people stick with what they have, spending far more than they need to in the process.

Mistake #2 – Having a Long Loan Term

On the face of it, a 30-year home loan may seem like an attractive prospect. You repay a smaller amount each month than you would with a shorter loan. This can ease a lot of the financial burden that having a mortgage creates.

However, you have to remember that you will pay more interest on a long-term loan. Your monthly repayments put a smaller dent in your loan’s principal. As a result, you pay interest on a larger principal for a longer period of time.

A shorter mortgage term allows you to save thousands of dollars in interest. Plus, you’ll be debt-free sooner, which means you can turn your money toward other things.

The difficulty here is that many lenders and brokers will push you towards long-term home loans. Brokers make more trailing commission on a long-term loan, while the lender gets to collect more interest.

Don’t cave into their pressure. If you think you can handle higher monthly repayments, secure a shorter term on your loan to take advantage of that fact. It will be a while before you see the benefits, but you will save thousands of dollars.

Mistake #3 – Adding Mortgage Fees to the Loan

The question of “what are the additional costs involved in buying property?” is an important one to ask. Most lenders charge entry fees, which can go as high as $1,000. Furthermore, you may have to pay Lender’s Mortgage Insurance (LMI) if you apply for more than 80% of your home’s value. LMI is a fee lenders charge to protect themselves when offering high-risk loans. You present a greater risk of defaulting if you borrow more money. As a result, LMI can cost tens of thousands of dollars.

These fees can seem like a huge burden, especially when you’re trying to save for your deposit. That’s why many lenders allow you to add the fees onto your mortgage. You don’t have to pay it upfront, and the lender recoups the money through your mortgage repayments.

Everyone’s a winner, right? Well, not quite. Adding these mortgage fees onto your home loan will cost you thousands of dollars. You still have to pay the fees, even if they’re more manageable when they’re part of your loan. Only now, you also have to pay interest.

Basically, you make your mortgage larger than it needs to be. As a result, it’s best to pay your mortgage fees upfront, rather than adding them to your loan.

Mistake #4 – Only Looking at the Interest Rate

This is a big mistake, and one that many first-time buyers make. Lenders use low interest rates to attract you to their products. Yes, it’s great to have a low rate attached to your loan. However, there are so many other things to consider before selecting a mortgage product.

The loan’s features and fees should be your priority. A lower interest rate may not mean much if the lender attaches extra fees to the loan for the privilege. You may also find that many low-interest loans don’t offer features that would help you to pay less. For example, it’s unlikely you’ll be able to use an offset account to lower the amount of interest you pay if the loan already has a low interest rate attached to it.

Furthermore, that low interest rate may not last forever. Many lenders offer introductory, or “honeymoon” rates to new borrowers. After a few months, these rates will revert to what the lender would prefer to charge you.

The point is that the interest rate isn’t always the most important thing. Consider your personal situation and seek the advice of a mortgage broker. You may find that a low-interest loan may not meet your needs.

Mistake #5 – Only Using Comparison Websites to Make Your Choice

Home loan comparison websites are useful tools. You can use them to create a shortlist of home loan products that you want to look into.

However, you cannot make your decisions based only on the information that these websites provide. In many cases, you’ll find that a comparison website’s information is not as accurate as the information you’d receive directly from the lender. It may be dated, or fail to take any extra features that a lender might offer you into account.

Furthermore, many comparison sites require lenders to pay a fee for inclusion on the website. This has led to some accusations that comparison websites feature a lender’s more expensive products in return for a fee.

As such, you should use comparison sites as a starting point for your research. However, you need to dig much deeper than the information they provide if you really want to know what a home loan product has to offer.

Mistake #6 – Fixing the Interest Rate

This is an interesting one, as fixing an interest rate isn’t always a mistake. In the right circumstances, a fixed-rate mortgage could save you thousands of dollars in interest payments. If you time it right, you could fix your rate so that it’s lower than Australia’s variable rate. Alternatively, you may feel more secure if you know exactly what you’re paying each month.

However, fixing for the wrong reasons is a mistake. In particular, fixing for a long period of time in an effort to “beat” your lender, could set you up for higher monthly repayments.

Consider this situation. The current interest rate is fairly low, which makes fixing an attractive proposition. You decide to fix your rate for five years. Anything could happen to the variable rate in that five years. If you’re lucky, it will stay above your fixed rate, which will save you money. However, if the variable rate drops below your fixed rate for an extended period of time, you end up paying more than you needed to.

Mistake #7 – Not Using a Mortgage Broker

Lenders prefer borrowers who come straight to them for advice for two reasons. For one, they know that you’re not an expert in the industry, which means you may end up making a decision that benefits the lender more than yourself.

Secondly, they know you have a limited amount of time to spend on searching for your mortgage. Most people who try to go it alone won’t visit dozens of lenders, or ask about all the hundreds of products on offer. You’ve limited your scope, which places your lender in the driving seat.

It’s usually a mistake not to use a mortgage broker. These professionals understand the mortgage industry and are obligated to find you the best deal possible. A broker immediately expands your scope, exposing you to lenders and products that you may not have found on your own.

As a result, you improve your chances of getting a loan that works for you when you work with a broker.

Mistake #8 – Failure to Prepare

Your lender will ask for a lot of different documents before approving your home loan. If you don’t go in prepared, you’ll delay the process. At worst, you may end up being rejected on a loan that you could have gotten. This creates an enquiry on your credit report. If you have too many enquiries, lenders become less willing to deal with you. As a result, you’ll end up with a more expensive home loan product.

Proper preparation makes the application process smoother. This is particularly important for the self-employed. Don’t think that a few bank statements are enough to get the job done. You’ll need to provide supporting documents, such as your tax returns, as well as anything else the lender may ask for.

Again, a mortgage broker can help you to prepare properly before you lodge an application. Doing so may prevent you from inadvertently lowering your credit score. This makes it easier to secure a loan that will save you some money.


Those are the top eight mistakes most people make when searching for a home loan. If you can avoid these blunders, you’ll save thousands of dollars in the long run.

Furthermore, working with the right buying agent will help you to determine the correct value for the property you want to buy. Contact Cohen Handler today to find out how we can help you.

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