5 costly mistakes home loan borrowers should avoid

Last updated on November 25th, 2021
  Written by 
Bill Tsouvalas
Bill Tsouvalas is the managing director and a key company spokesperson at Savvy. As a personal finance expert, he often shares his insights on a range of topics, being featured on leading news outlets including News Corp publications such as the Daily Telegraph and Herald Sun, Fairfax Media publications such as the Australian Financial Review, the Seven Network and more. Bill has over 15 years of experience working in the finance industry and founded Savvy in 2010 with a vision to provide affordable and accessible finance options to all Australians. He has built Savvy from a small asset finance brokerage into a financial comparison website which now attracts close to 2 million Aussies per year and was included in the BRW’s Fast 100 in 2015 as one of the fastest-growing companies in the country. He’s passionate about helping Australians make financially savvy decisions and reviews content across the brand to ensure its accuracy. You can follow Bill on LinkedIn.
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Failing to review your home loan

If you are a home loan borrower, then you need to review the loan regularly, once a year as a minimum. This is necessary so you can check the charges and fees that you are covering. Your loan can be evaluated by mortgage brokers, to establish whether or not it remains competitive. In the absence of this regular check, you could find yourself overpaying for your mortgage, and that adds up over several years, so don’t forget about the reviews.

Paying monthly

Most payments are set up to be made monthly, but did you know that you can adjust the frequency to once every two weeks, or even weekly? What this does is amount to one whole additional payment every year. For example, let’s say you have taken out a loan that was supposed to be repaid over a period of several decades (20 or 30 years). Increasing the payment frequency can help you pay it off several years earlier, thus saving money (as much as tens of thousands of dollars) on interest rates.

Paying an increased interest rate

A mistake a lot of people make is that they don’t adjust their interest rate. You see, you start out paying a certain percentage, but that average changes over time. So, you might find yourself paying your old interest rate that is significantly higher than the current average. The difference doesn’t seem high (2%, for example), but it adds up to a pretty significant sum, especially over time. Avoiding this is as simple as calling your lender and letting them know about smaller interest rates at other banks. Alternatively, you can always switch banks.

Taking a fixed-term interest rate

Are you aware of how much it costs to break your fixed-term interest rate? It can cost you thousands of dollars, which is why you have to be extra careful when deciding to set it up. Make sure that you are fully aware and informed of all the details and the circumstances of this decision. A fixed interest rate can have advantages if you are concerned about being able to make your payments, but it can also come back to bite you later, if you want to get rid of it, so choose wisely.

Not taking the time to understand how your loan works

First-time buyers can really get blind-sided by this one, so if you’re one of them, be careful when choosing a home loan. You have to understand exactly what the features of your home loan are, in order to know how it works.

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This guide provides general information and does not consider your individual needs, finances or objectives. We do not make any recommendation or suggestion about which product is best for you based on your specific situation and we do not compare all companies in the market, or all products offered by all companies. It’s always important to consider whether professional financial, legal or taxation advice is appropriate for you before choosing or purchasing a financial product.

The content on our website is produced by experts in the field of finance and reviewed as part of our editorial guidelines. We endeavour to keep all information across our site updated with accurate information.

Approval for home loans is always subject to our lender’s terms, conditions and qualification criteria. Lenders will undertake a credit check in line with responsible lending obligations to help determine whether you’re in a position to take on the loan you’re applying for.

The interest rate, comparison rate, fees and monthly repayments will depend on factors specific to your profile, such as your financial situation, as well as others, such as the loan’s size and your chosen repayment term. Costs such as broker fees, redraw fees or early repayment fees, and cost savings such as fee waivers, aren’t included in the comparison rate but may influence the cost of the loan. Different terms, fees or other loan amounts may result in a different comparison rate.

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