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As revealed in a Money.com.au study, the top mistakes first home buyers have when securing a home loan are:
- Paying too much in loan processing and ongoing fees (22 per cent).
- Not being on a competitive interest rate (21 per cent).
- Choosing a loan without offset or redraw features (16 per cent).
- Not understanding the product they signed up for (15 per cent).
- Not using a broker or using the wrong broker (13 per cent).
- Locking in a bad fixed rate (6 per cent).
- Taking the advice of parents or family on which loan to choose (6 per cent).
Depending on the age of the first home buyer, the concerns differed. For Gen Z, the top concern was monetary, as 28 per cent regretted paying high loan processing and monthly fees.
For Millennials, complexity was the top concern, with a quarter not fully understanding the loan product they signed up for.
For Gen X, high rates were by far the top concern, with 38 per cent regretting not being on a competitive enough interest rate.
Money.com.au’s mortgage expert, Debbie Hays, said a lack of understanding can be extremely damaging for a first home buyer.
An analysis revealed that the difference between a 5.70 per cent per annum interest rate compared to a 5.50 per cent one can save more than $30,000 over the life of a $600,000 loan. This equates to $76 in monthly repayments.
According to Hays, many borrowers lock in a loan with the first lender they come across, usually their existing bank or the one their parents use.
This can place them in a loan that is far from competitive, engaging with a loan that could have high fees and rates.
“Once they catch their breath, they often realise they could have secured a better deal, or that the loan they chose doesn’t suit their long-term needs,” said Hays.
She said there are a large number of first home buyers who will refinance in their first year, once they understand how processes work.
“By then, they’ve usually improved their loan-to-value ratio, gained experience with loan products and features, and become more assertive about what they want or don’t want from a lender. Many are also confident enough to haggle and push for establishment fees to be waived on their next loan,” Hays said.
Brokers can help first home buyers to mitigate these issues by holding their hand through the loan journey.
Those who become a source of knowledge can help keep client confidence high and have them walk away as advocates.
[Related: Refinance frenzy: 100k borrowers switch lenders in Q2]
