Buying a home can be exciting, but mortgages can sometimes feel like the frightening part.
With unfamiliar terminology, changing interest rates and plenty of information available online, it is easy to come across claims that sound convincing but aren’t necessarily true. Some mortgage myths have been around for years, while others have emerged as the way people buy and finance homes has changed.
It’s important to separate fact from fiction in the mortgage world, so let’s dive into a few myths and discover what’s actually true.
Myth 1: You need a 20% deposit to buy a home
One of the most common mortgage myths is that you need a 20% deposit before you can buy a property.
There are mortgage products available with smaller deposits, meaning a buyer may not necessarily need to save 20% of the property’s value.
However, the size of your deposit can affect the mortgage you can access and the overall cost of borrowing. Generally, a larger deposit means borrowing a smaller proportion of the property’s value, which can affect the loan-to-value (LTV) ratio and the mortgage products available.
So while 20% isn’t a universal requirement, saving as much as you reasonably can remains an important part of preparing to buy.
Myth 2: You need a perfect credit score
Having a good credit history can be important when applying for a mortgage, but you don’t necessarily need a flawless credit record.
Lenders look at your financial circumstances when assessing an application. Your credit history is one part of that picture, alongside factors such as income, existing commitments and affordability.
Having missed payments or other issues on your credit history doesn’t automatically mean that getting a mortgage is impossible. However, it can affect the options available to you.
It is therefore worth checking your credit report before making major financial decisions and making sure the information held about you is accurate.
Myth 3: The bank will lend you whatever you can afford each month
It might seem logical that if you can comfortably afford a particular monthly payment, a lender will simply agree to lend you the corresponding amount.
In reality, mortgage affordability is more complicated.
Lenders consider income, expenditure, existing financial commitments and other factors when assessing how much someone can borrow. They also need to consider whether the mortgage remains affordable under different circumstances.
This means that the amount someone thinks they can comfortably repay isn’t necessarily the same as the amount a lender is prepared to offer.
Myth 4: The cheapest mortgage rate is always the best mortgage
A low interest rate can certainly look attractive, but the headline rate isn’t the only thing worth considering.
Mortgage products can have different fees, terms and conditions. A mortgage with a slightly higher interest rate but lower fees could potentially work differently from one with a lower rate and higher upfront costs.
The length of the deal can also matter.
This is why comparing mortgages based solely on the advertised interest rate can give an incomplete picture of the overall cost.
Myth 5: You can be too old to get a mortgage
In recent years, the age of property buyers has steadily increased.
The conception that you can only buy a home at a young age is an outdated one. More and more people are applying for mortgages later in life.
It’s never too late to get onto the property ladder!
Don’t let mortgage myths intimidate you
Mortgages can seem complicated, particularly when you’re faced with unfamiliar terminology and conflicting information.
The internet has made it much easier to research mortgages, but it has also made it easier for outdated advice and common misconceptions to spread.
The reality is that mortgage decisions are rarely as simple as a single rule or number. Deposits, credit history, income, expenditure, property value, interest rates, mortgage terms and individual circumstances can all play a part.
Please note: This blog is for general information only and does not constitute financial advice.