Applying for a home loan can easily be the most stressful period of your life, especially if you're a first-home buyer.

And along with cost-of-living pressures and consecutive cash rate rises, there are a bunch of misconceptions and myths on the market to worsen your stress load.

But never fear! 

Lending Loop is pleased to expose the worst of such home loan horrors for what they really are: fiction.

Home Loan Myth #1: Lenders are intelligent

Sadly, lenders - including the Big Four Banks - can be some of the silliest and most unreasonable people you'll ever have to deal with.

It's true that they are lending you an enormous amount of money, but at the same time, interest accounts for around half of the repayments borrowers make on an average 30-year mortgage.

Bottom line: lenders will enjoy an extremely good deal from you but don't expect to enjoy intelligence and reasonability from them in return.

Neither health issues nor other lifestyle restrictions beyond your control will impact lenders' empathy - beyond a token "We apologise for this inconvenience" line.

With this in mind, assume they'll put your patience and stress levels through the wringer with absurd requests - even after you've received unconditional approval on your loan.

Home Loan Myth #2: Borrowing through a big bank is always better

Nope, small can be fantastic when it comes to home loan lenders.

By all means, do some research on the Big Four Banks first, but these lenders always pass on the Reserve Bank of Australia's (RBA)'s monthly cash rate decisions to their customers - and often jump their interest rates even higher.

In comparison, smaller banks or non-bank lenders may decide to go a little easier on potential borrowers when it comes to interest rates, and as well, often provide better service overall.

Home Loan Myth #3: Loans with the lowest interest rate are always best

This myth does have some truth to it, particularly in this period of sharply rising interest rates and most likely, many more increases to come.

But as well as a great interest rate, the home loan itself needs to feature plenty of great details such as minimal fees and charges, offset accounts and redraw options.

Great service from your lender is also crucial with home loan applications being highly stressful even if everything runs smoothly.

NB: don't forget to check your home loan's comparison rate, rather than its interest rate. Comparison rates include upfront and ongoing fees - bar government charges such as stamp duty - which your advertised interest rate doesn't, 

Also, don't forget that lenders are required by law to assess borrowers' ability to pay a loan at a higher level than that of their advertised interest rate. This serviceability “buffer” is set at 3% above the loan's interest rate.

Home Loan Myth #4: Your current lender will reward your loyalty with a good rate

Again, this is a myth that has some truth to it.

It's definitely worth approaching your current lender about their home loans before going to other lenders.

And by all means, push the fact that you've stuck with them for years as a reason to offer you a better interest rate or other special loan deals.

But just don't assume they'll help you!

At the same time, it can be a very good idea to stick with the lender you know, even if their interest rates are higher than those of another lender.

The higher rates may be worth the lesser stress involved in running through the rigmarole of proving your identity with a new lender (this can be much harder than you think), especially at a time when your patience and stress levels are already in overdrive.

New lenders will also usually require you to set up an account with them, including organising an ATM card, which will see you also having to switch funds backwards and forwards between your two lenders.

Home Loan Myth #5:  You need a 20% deposit to buy a home

This is another partly true myth, as strictly speaking and in an ideal world, you should aim for a 20% deposit when buying a home.

These days, however, most borrowers can barely find a 5% deposit, and many mindful lenders will also approve such a tiny deposit.

Just be aware that if your deposit is less than 20%, you will need to pay Lender's Mortgage Insurance, meaning you will still have extra funds to repay as part of your loan - and making finding a higher deposit worthwhile in the long run.

However, buyers with a guarantor won't need to pay LMI while another option for first-home buyers is the Federal Government's First Home Guarantee (formerly the First Home Loan Deposit Scheme), in which the government acts as your guarantor and LMI payments aren't necessary.

Home Loan Myth #6: You can never pay your mortgage early

Definitely untrue - but you do need to have a variable, rather than a fixed-rate, loan to avoid fees and charges.

Strictly speaking, home loan exit fees were banned in July 2011 by the Federal Government - but not all exit fees were impacted.

Plus, even borrowers with a variable loan may still be charged some type of fee when "leaving" the loan via an earlier-than-expected repayment.

So, make sure you check this point before beginning a home loan with your lender - and while you're at it, also check if you'll be charged if you refinance with another lender.

We're here to help

Whatever home loan road you wish to take, we’d love to help you travel it!

We can find you the best home loans from more than 40 of Australia’s biggest banks and specialist lenders and we can also help you refinance your loan to help you keep more money in your pocket.

So, give us a call today at Lending Loop.