Welcome to Cheques and Balances. I’m Michael Vincent, this is James Blair and this week – 5 myths you should know about mortgage applications.
There’s a lot of myths floating around in the media about mortgages applications so we thought we’d take the time out today to bust some common myths.
Myth #1 – “Should I take out a credit card to improve my credit score?”
We get asked this all the time. While this might be relavent in the U.S or UK, it’s not as relavent here in NZ. In New Zealand your credit score is only assessed from neutral to negative, not neutral to positive. In addition, just because you’ve had a credit card and never missed a payment, doesn’t make it more likely that you’re going to get an approval too.
Myth #2 – “Do I have to cancel my Netflix subscription to get a mortgage?”
More subscriptions as fixed expenses may impact how much you can borrow, but they are not the fundamental reason that your mortgage application get declined. If the foundations of the mortgage application are acceptable and you can afford the servicing, you will get approved.
If you are on the margin of getting the approval, you may have to taper some expenses temporarily but you don’t have to cancel everything outright before you apply.
Myth #3 – “Banks and mortgage advisors get the same result”
Completely false. Bank staff and mortgage advisors can give different types of advice. With the latest CCCFA changes, bank staff are more restrictive with the advice they can give and therefore can’t tell you to cancel subscriptions or reduce expenses in order to meet the banks criteria. A mortgage advisor can give much more specific advice on exactly which expenses to trim or other actions to take in order to meet conditions.
The other advantage to mortgage advisors is that they are able to go to multiple banks and lenders in the market on your behalf and get you the best possible lending and rates, rather than being tied to just one bank.
Myth #4 – “The lowest interest rate is the best option”
The lowest interest rate is not always the best option for you. While picking the lowest possible interest rates might seem like the best idea at the time, picking a slightly higher interest rate and fixing for a longer period might put you in a better position over the long term. As always, this comes down to your personal situation and your long term goals so it’s always best to chat to a mortgage advisor before making decisions like this.
Myth #5 – “You can’t get a mortgage if you’re self-employed”
We speak to a lot of self-employed people about this and different banks treat self-employed people differently. Another common myth is that you need at least 2 years of financial history, some lenders will provide lending on less than 2 years, some will accept 6 months. With the right reasoning and the right story, there’s no reason why you shouldn’t be getting a mortgage if you’re self employed.
Bonus Myth – “You shouldn’t subscribe to Cheques and Balances”
False! Make sure to follow and subscribe on our channels below:
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