8 Costly Mortgage Assumptions That Could Hurt You | Mortgage & Refinance Tips from Truth Group

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Home Loan Myths Australia: 8 Costly Mortgage Mistakes to Avoid

Many home buyers and mortgage holders make important financial decisions based on advice from family, friends, social media or overseas websites. The problem is that home loans in Australia are assessed using Australian lender policies, credit requirements, property rules and loan features. Understanding the truth behind common mortgage myths can help you avoid unnecessary applications, unrealistic property budgets and loan structures that may not suit your circumstances.

Home Loan Myths Australia: Quick Answer

Eight common Australian home loan myths are:

1. You always need a 20% deposit.
2. The lowest interest rate is always the best loan.
3. Your current bank will automatically offer the best deal.
4. Pre-approval guarantees final loan approval.
5. An offset account and redraw facility are the same.
6. A fixed rate is always safer than a variable rate.
7. Refinancing always saves money.
8. Applying to more lenders increases your approval chances.

The right home-loan strategy depends on your income, expenses, deposit, debts, property, future plans and the lender assessing the application.

Myth 1: You Always Need a 20% Deposit

A 20% deposit can reduce the amount you need to borrow and may help you avoid lenders mortgage insurance. However, it is not a universal minimum requirement. Depending on the lender and your circumstances, an application may be considered with a smaller deposit. Eligible first-home buyers may also be able to use a government-backed low-deposit scheme, subject to current eligibility rules, property price caps and participating-lender approval.

What Can Happen With a Smaller Deposit?

A smaller deposit may result in:

• A higher loan-to-value ratio
• Lenders mortgage insurance
• Fewer suitable lender options
• Higher rates or fees
• Stricter credit requirements
• A larger loan balance
• Greater exposure if the property value falls

You also need money for more than the deposit.

• Purchasing costs may include:
• Stamp duty or transfer duty
• Conveyancing or solicitor fees
• Building and pest inspections
• Strata reports
• Loan and government fees
• Insurance
• Moving expenses
• Initial repairs
• An emergency buffer after settlement

The Better Approach Calculate the complete amount required to purchase the property—not only the lender’s minimum deposit. Read the First Home Buyer Guide Australia for more information about deposits, government assistance and buying costs.

Myth 2: The Lowest Interest Rate Is Always the Best Home Loan

The interest rate is important, but it does not tell you everything about a home loan.

A loan with a lower advertised rate may also have:

• Application fees
• Annual package fees
• Monthly account fees
• Limited additional repayments
• No offset account
• Restricted redraw access
• Fixed-rate break costs
• Fewer useful loan features
• Eligibility requirements you may not satisfy

The cheapest-looking loan may not provide the best overall result once the fees, features and loan term are considered.

What Should You Compare?

Review:

• Interest rate
• Comparison rate
• Upfront fees
• Ongoing fees
• Fixed or variable structure
• Offset availability
• Redraw conditions
• Additional repayment limits
• Repayment frequency
• Loan term
• Discharge costs
• Lender eligibility requirements

A basic loan with a lower rate may suit a borrower who does not require additional features. Another borrower who regularly maintains substantial savings may receive more value from a loan with an offset account, even where the rate or annual fee is slightly higher.

The Better Approach

Compare the complete loan structure based on how you expect to use it—not only the advertised rate.

Myth 3: My Current Bank Will Automatically Give Me the Best Deal

Being a long-term customer does not guarantee that your bank will automatically provide its most competitive pricing or the most suitable loan structure.

Your current lender may have:

• Newer products
• Different package options
• Retention pricing
• Alternative fixed or variable rates
• Internal loan restructuring options

Other lenders may also use different policies for:

• Income assessment
• Credit history
• Self-employed applicants
• Property types
• Deposit requirements
• Loan features
• Existing debts
• Borrowing capacity

The Better Approach

Before accepting your current bank’s offer:

1. Ask the bank to review its pricing.
2. Check whether a more suitable internal product is available.
3. Compare other potentially suitable lender options.
4. Consider fees, features and eligibility.
5. Choose the structure that suits your circumstances.

A mortgage broker can compare options available through the broker’s lender panel. Not every lender or product in the Australian market is necessarily available through one broker.

Myth 4: Pre-Approval Guarantees Final Loan Approval

Home-loan pre-approval is not unconditional approval. It is a preliminary indication that a lender may be prepared to lend up to a specified amount based on the information assessed at the time.

Final approval can still depend on:

• Updated income documents
• Verification of expenses and debts
• Credit assessment
• Deposit evidence
• The selected property
• A satisfactory valuation
• Contract conditions
• Lender policy
• Confirmation that your circumstances have not changed

What Can Affect Pre-Approval?

Your position may change if you:

• Start a new job
• Reduce your working hours
• Take out car finance
• Apply for a credit card
• Increase a credit limit
• Use part of your deposit
• Miss loan repayments
• Purchase an unacceptable property
• Offer above your approved budget
• Allow the pre-approval to expire

The lender may also change its policies or assessment requirements before final approval.

The Better Approach

Treat pre-approval as a budgeting and preparation tool—not a guarantee. Before making an unconditional offer or bidding at auction, understand:

• The conditions attached to the pre-approval
• Whether your financial position has changed
• Whether the property may be acceptable to the lender
• The deposit and cash contribution required
• The legal consequences of the contract

Your conveyancer or solicitor should provide legal and contract advice. Need to understand your potential buying budget?

Check My Borrowing Power

Myth 5: An Offset Account and Redraw Facility Are the Same

An offset account and redraw facility can both affect the interest charged on a home loan, but they work differently.

What Is an Offset Account?

An offset account is a transaction account linked to an eligible home loan. The balance held in the offset account reduces the portion of the loan used to calculate interest.

For example, if you have:

• A $500,000 home loan
• $20,000 in a full offset account

Interest would generally be calculated on $480,000 while that balance remains in the account.

The actual benefit depends on:

• The amount held in the account
• How long the balance remains there
• The loan’s interest rate
• Any additional loan or account fees

What Is a Redraw Facility?

A redraw facility allows you to access eligible additional repayments previously paid into the home loan.

Access depends on the lender’s conditions, which may include:

• Minimum withdrawal amounts
• Available redraw balance
• Online access rules
• Processing requirements
• Restrictions on the loan product

Why Does the Difference Matter?

Offset and redraw arrangements may have different:

• Access conditions
• Fees
• Record-keeping outcomes
• Taxation consequences
• Risks if the property later becomes an investment

Obtain taxation advice where the loan or property may have an investment purpose.

The Better Approach

Choose the feature based on:

• The amount you expect to keep available
• How frequently you need access to the money
• The cost of the loan package
• Your future property plans
• The purpose of the loan
• Appropriate professional advice

Do not pay extra for an offset account unless the expected benefit justifies the cost.

Myth 6: A Fixed Rate Is Always Safer Than a Variable Rate

A fixed-rate loan can provide predictable repayments during the agreed fixed period. However, that does not make it automatically safer or more suitable for every borrower.

Fixed-Rate Considerations

A fixed loan may involve:

• Limits on additional repayments
• Restricted offset or redraw access
• Break costs if the loan is changed or repaid early
• No benefit if variable rates fall
• A different variable rate when the fixed period ends

Variable-Rate Considerations

A variable loan may provide:

• Additional repayment flexibility
• Offset or redraw features
• Easier refinancing or restructuring
• The benefit of future lender rate reductions
• Higher repayments if rates increase

What About a Split Loan?

A split loan combines fixed and variable portions.

This may provide:

• Some repayment certainty
• Some repayment flexibility
• Access to features on the variable portion
• Reduced exposure to movements in either direction

The Better Approach Before selecting a fixed, variable or split loan, consider:

• Your need for predictable repayments
• Capacity to manage repayment increases
• Plans to make additional repayments
• Expected offset-account balance
• Whether you may sell or refinance
• Fixed-rate restrictions
• What happens when the fixed period ends

Read Fixed vs Variable Home Loan Rates Australia for a more detailed comparison.

Myth 7: Refinancing Always Saves Money

Refinancing may help reduce interest, improve loan features or create a more suitable mortgage structure. However, refinancing does not automatically produce a better financial outcome.

Potential Refinancing Costs

Switching costs may include:

• Discharge fees
• Application fees
• Settlement fees
• Property valuation fees
• Government registration charges
• Fixed-rate break costs
• Annual package fees
• Lenders mortgage insurance

Lenders mortgage insurance may apply again if the new lender considers the loan-to-value ratio too high under its policy.

The Loan Term Trap

Refinancing to a longer loan term may reduce the regular repayment while increasing the total interest paid over time. For example, restarting a loan over another 30-year term may create lower monthly repayments but extend the period during which interest is charged.

The Better Approach

Before refinancing, compare:

1. Your current rate and repayment.
2. The proposed rate and repayment.
3. All switching costs.
4. Ongoing fees.
5. The current remaining loan term.
6. The proposed new loan term.
7. The time required to recover the switching costs.
8. Fixed-rate break costs.
9. Loan features.
10. Your expected future plans.

A lower repayment does not always mean a lower total cost. Read the Home Loan Health Check or visit Refinance Home Loan Sydney before deciding whether changing lenders may be worthwhile.

Myth 8: Applying to More Lenders Improves Your Chance of Approval

Submitting several home-loan applications without a clear strategy can create multiple credit enquiries. A formal credit application may be recorded on your credit report.

Repeated applications can also make it harder for the next lender to understand:

• Whether additional credit has been approved
• Whether new debts exist
• Why previous applications were unsuccessful
• Whether the applicant is experiencing financial difficulty

Different lenders use different policies, but repeatedly submitting an unsuitable or incomplete application does not fix the underlying issue.

The Better Approach

Before submitting a formal application:

• Review your borrowing position
• Check your credit report
• Confirm your deposit
• Collect current documents
• Disclose all liabilities
• Review lender policies
• Select an appropriate lender
• Submit one properly prepared application

An initial borrowing-power discussion does not necessarily require a formal lender application.

Read Why Was My Home Loan Declined? before applying again after a rejection.

Bonus Myth: Mortgage Brokers Work for the Bank

A mortgage broker helps borrowers compare and apply for home loans available through the broker’s lender panel.
A broker may help you:

• Review your objectives
• Estimate your borrowing position
• Compare potentially suitable lenders
• Explain rates, fees and features
• Review your application documents
• Submit the application
• Respond to lender requests
• Manage the application through to settlement

Mortgage brokers are commonly paid commission by the lender when an eligible loan settles. Applicable commissions and fees should be disclosed before proceeding. The mortgage broker does not approve the loan. The lender makes the final credit decision.

How to Avoid Costly Home Loan Mistakes

Before applying for, restructuring or refinancing a mortgage:

1. Understand your comfortable repayment budget.
2. Review all debts and credit limits.
3. Check your credit report.
4. Calculate the complete deposit and purchasing costs.
5. Compare more than the advertised interest rate.
6. Understand offset and redraw differences.
7. Review fixed-rate restrictions.
8. Calculate the costs of refinancing.
9. Avoid unnecessary credit applications.
10. Obtain legal, taxation or financial advice where required.

Frequently Asked Questions

Do I Need a 20% Deposit to Buy a Home? Not always. Some lenders may consider smaller deposits, although lenders mortgage insurance, higher costs or stricter policy requirements may apply. Eligible buyers may also qualify for current government-backed low-deposit assistance.

Is the Comparison Rate More Important Than the Interest Rate? Both provide useful information. The comparison rate includes the interest rate and certain fees using a standardised loan example. It may not reflect your exact loan amount, term or how you will use the loan. Compare the entire product.

Should I Refinance Whenever Another Lender Advertises a Lower Rate? No. First compare the switching costs, fees, replacement loan term, features, lenders mortgage insurance and the time required to recover the refinancing costs.

Does Pre-Approval Mean I Can Safely Bid at Auction? No. Pre-approval remains conditional and does not guarantee final approval. Auction purchases are generally unconditional, so obtain suitable finance and legal advice before bidding.

Is Money in an Offset Account Accessible? An offset account generally operates like a transaction account, but access conditions depend on the lender and product.

Can I Refinance a Fixed-Rate Home Loan? Potentially, but fixed-rate break costs may apply. Ask the lender for a current break-cost estimate before changing or repaying the loan.

Does Checking My Borrowing Power Affect My Credit Report? An initial borrowing-power estimate or broker review does not necessarily require a formal lender application. A credit enquiry may be recorded once a formal application is submitted.

Can a Mortgage Broker Guarantee Approval? No. A mortgage broker can compare lender options and assist with preparing an application, but the lender makes the final credit decision. Review Your Home Loan Before Making a Decision Whether you are preparing to buy, considering refinancing or reviewing an existing mortgage, the right strategy depends on your complete financial position—not a general home-loan myth.

Truth Group can help you:

• Review your potential borrowing position
• Compare potentially suitable options from more than 40 lenders
• Understand interest rates, fees and loan features
• Review fixed, variable and split structures
• Prepare a home-loan application
• Assess whether refinancing costs may be worthwhile

Check My Borrowing Power

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Call or SMS Nick on 0426 259 327 . Nicholas Parpis Australian Credit Representative 552460 Director of Truth Group Pty Ltd

Last reviewed August 2026. Information is general and does not consider your individual objectives or financial circumstances. Rates, fees, lender policies and government requirements can change. Loan approval remains subject to lender assessment, valuation, eligibility requirements and credit policy.