Many investors think of mortgages as being a necessary evil, but it doesn’t need to be that way. Consumer advocate and long-time industry stalwart, Lisa Montgomery, offers five key insights to demystify the dark world of mortgages.
1. Mortgages are a tool for wealth creation
People invest in property for a variety of reasons but primarily it’s a wealth creation tool. They buy property on the basis that it will go up in value.
In order to do that they need a mortgage, and their appetite towards finance will vary depending on how they are sitting with their portfolio at any point in time.
2. Mortgages create opportunity
The first deposit you put down on a property becomes the first step towards retirement, because equity is going to grow from there.
And from equity comes opportunity.
The way to get more equity is to pay down the mortgage to maximise the property’s natural capital gain. This allows you to access the equity to leverage into other assets.
3. Choosing the right mortgage provider is important
Which lender you go with is very important — given that there is such a wide variety of them available.
You want to partner with somebody who is going to share the investment journey with you. It may not just be one institution, and will depend on whether your investment strategy is for the short-, medium- and long-term.
4. Mortgage flexibility can be more valuable than a low interest rate
People normally focus on the interest rate because it is so apparent — right there in front of you.
But flexibility is such a critical thing because it offers choice and options — particularly for first-time investors.
Bear in mind that the more features you have, the higher the rate premium you’ll pay.
5. The true cost of a mortgage lies in the comparison rate
Look past the quoted interest rate. Focus instead on the comparison rate because it will include all the fees and charges you will need to pay. It will reveal the true cost of the mortgage.