Results 1 to 7 of 7

Thread: Uncovering the myths about mortgages

  1. #1
    God/dess GoldCoastGirl's Avatar
    Joined
    Oct 2002
    Location
    ...hehehe... email me to ask me where i am ! (i dare you!)
    Posts
    11,486
    Thanks
    42
    Thanked 127 Times in 51 Posts

    Default Uncovering the myths about mortgages

    http://www.wizard.com.au/wizard_wome...228&ref=wwn004

    Uncovering the myths about mortgages and buying your dream home

    In a recent survey of Wizard's 200 branches across Australia, we discovered some of the most common myths encountered by first home buyers when looking for a home loan. Here they are:
    • A bad credit history doesn't matter if you eventually pay it off. Not true – a patchy credit history can haunt you – even if it is very old or just a one off small amount, so keep on top of your bills.
    • Assets are the same as income. What really counts when applying for home finance is your capacity to repay the loan through a regular income, not how many assets you may have.
    • It's the credit card balance, not the limit that counts. Another myth – in reality, the less available credit you have – such as credit cards and other loans, the better.
    • You need a 20 per cent deposit to get started. These days, financially stable first home borrowers can take advantage of a growing number of loans that allow you to borrow up to 100 per cent of the property value. However, you will still be required to pay for legal fees, Lender's Mortgage Insurance, purchase and mortgage duty.
    • A fixed rate is always safer than a variable rate. Every home loan is different – so too are your home loan needs. What's important to remember is that fixed rates are calculated by the capital markets over the period you sign–on for, whether that be for three, five, or seven years. If variable interest rates go down during this fixed period, you could end up paying a higher interest rate than compared to the standard variable rate.
    • Personal debts can be rolled into a new home loan. Often, you will need to wait until the property builds some equity before you can refinance and roll all your additional debts into the home loan.
    • Minimum, monthly repayments are best. Not true – paying as much above the minimum repayment as you can is the fastest way to pay off your home loan and can save you thousands of dollars of interest.


    this is kinda aimed towards australians btw


    enter: E3167322D9 for your 10% discount

  2. #2
    Banned Melonie's Avatar
    Joined
    Jul 2002
    Location
    way south of the border
    Posts
    25,932
    Thanks
    612
    Thanked 10,563 Times in 4,646 Posts
    Blog Entries
    3
    My Mood
    Cynical

    Default Re: Uncovering the myths about mortgages

    it would appear that this piece is a bit dated. If I may ...

    #1 I agree with the author entirely that a history of late payments can never be as good as a history of timely payments

    #2 Assets represent an unrealized gain, or an unrealized loss, until the point that you choose to (or are forced to) sell those assets. At that point, the gain or loss becomes very real. Where real estate is concerned, the early 00's represented a period of virtually assured gains causing many people (this author included) to adopt a viewpoint that real estate values could only go up. For a fact they can go down, and if a homeowner is forced to sell at a lower price than the home was purchased for this represents a very real loss/debt.

    #3 - re credit cards, what matters most is total available credit versus total income, plus the amount of that total credit which has been utilized. In other words, having too many cards or even just a couple of cards with really high limits can compromise credit rating because other lenders look upon this line of credit as if the would-be borrower had utilized it all already.

    #4 - in the US and Europe at least, zero down mortgage loans are becoming more and more difficult to come by. The reason is that a down payment represents an 'insurance policy' to the mortgage lender that if and when the borrower goes belly-up that the lender can still recover the outstanding mortgage loan balance via foreclosure and sale of the property. But if property values are falling, the lender of a 100% mortgage cannot recover the outstanding mortgage loan balance.

    #5 - one needs to define 'safer'. With conventional loans at least the interest rate thus monthly payment amount is a fixed number of dollars. With market based loans the interest rate thus the monthly payment amount is free to go up or down with world interest rates. As interest rates are just beginning to rise from historic lows, the odds are that monthly ARM payments will now increase. ARMs have their place i.e. they are the least expensive form of short term loan during the 'honeymoon' period. However caution should be exercised by anyone seeking an ARM who is not prepared to pay it off before the 'honeymoon' period expires, because there is no guarantee that falling real estate prices or rising future interest rates may make refinancing on more favorable terms impossible. The mortgage lenders certainly consider loans with less than 20% equity as being riskier, which is why there is a derivatives and 'insurance' industry built around hedging potential losses from low / no equity mortgage loans.

    #5 - using home equity extraction to pay off personal debts only works if the amount of home equity has increased. In conditions of falling real estate prices, home equity can be stagnant or even decrease.

    #6 - minimum monthly mortgage payments can be downright suicidal where the 'honeymoon' period terms involve negative amortization, where Option ARM minimum payments fall below the actual monthly interest charge etc.

  3. #3
    Veteran Member StuartL's Avatar
    Joined
    Feb 2006
    Location
    European Man Of Mystery
    Posts
    648
    Thanks
    1
    Thanked 21 Times in 7 Posts

    Default Re: Uncovering the myths about mortgages

    Hey GCG - there is some useful info in there. I know that the Aussie system is very similar to the UK one. In fact, Australian and New Zealand financial advisers used to sit slightly modified UK financial exams. I presume that they still do.

    To add - fixed vs variable. Even the IMF 2 years ago proclaimed that longer term fixed rate mortgages reduce risks to the borrower AND if used enough, reduce risks massively in the entire residential property market of a country. This, they explained, is why countries like France, Belgium and the Netherlands don't seem to have housing crashes. Of course there is more to it than that - enormous purchase taxes don't help speculators either.

    Anyway, nice points to post.

    Cheers

  4. #4
    God/dess GoldCoastGirl's Avatar
    Joined
    Oct 2002
    Location
    ...hehehe... email me to ask me where i am ! (i dare you!)
    Posts
    11,486
    Thanks
    42
    Thanked 127 Times in 51 Posts

    Default Re: Uncovering the myths about mortgages

    It's the credit card balance, not the limit that counts. Another myth – in reality, the less available credit you have – such as credit cards and other loans, the better.
    I was recently approved (still awaiting the actual card) $2000 limit credit card. So if I used this for a period of a couple of years and then prior to apply-ing for an actual home loan cancelled said card thus no longer having a $2000 limit credit card..... that would be the best way to go about things right ?

    Cancel the card and just re-apply for it again at a later time after my home loan has been approved (and the home the loan was approved for has been settled) ...right???


    enter: E3167322D9 for your 10% discount

  5. #5
    Banned Melonie's Avatar
    Joined
    Jul 2002
    Location
    way south of the border
    Posts
    25,932
    Thanks
    612
    Thanked 10,563 Times in 4,646 Posts
    Blog Entries
    3
    My Mood
    Cynical

    Default Re: Uncovering the myths about mortgages

    ^^^ not necessarily. A $2000 limit credit card account is going to appear as 'small potatoes' to mortgage lenders ... such that cancelling such a 'small potatoes' credit card account might actually do more damage by raising lender eyebrows. Now if you were talking about a credit card account with a $10k or $25k limit it would be a different story.

  6. #6
    God/dess GoldCoastGirl's Avatar
    Joined
    Oct 2002
    Location
    ...hehehe... email me to ask me where i am ! (i dare you!)
    Posts
    11,486
    Thanks
    42
    Thanked 127 Times in 51 Posts

    Default Re: Uncovering the myths about mortgages

    Now I get it. *lightbulb*


    enter: E3167322D9 for your 10% discount

  7. #7
    Featured Member scorpio's Avatar
    Joined
    Nov 2003
    Location
    Chicago
    Posts
    868
    Thanks
    0
    Thanked 3 Times in 3 Posts

    Default Re: Uncovering the myths about mortgages

    Do not cancel. If the lender looks at your credit, and you have no open accounts, they will not lend to you. They fear people that do not have current credit history.

Similar Threads

  1. Customer Myths v. Facts
    By KeithDoxen in forum Shop Talk
    Replies: 8
    Last Post: 12-28-2011, 12:08 PM
  2. Go Go Rama - Facts vs. Myths
    By Eric Stoner in forum Industry Insight
    Replies: 51
    Last Post: 05-02-2009, 06:02 PM
  3. miscarriage myths.
    By Lola Rose in forum The Lounge
    Replies: 13
    Last Post: 03-28-2008, 09:17 PM
  4. Pregnancy Myths
    By Kaylinn in forum The Lounge
    Replies: 49
    Last Post: 11-25-2007, 01:42 PM
  5. 5 exercise/fitness MYTHS
    By HotThreads in forum Body Business
    Replies: 19
    Last Post: 06-08-2005, 06:24 PM

Bookmarks

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •