11 mortgage mistakes that most people make

DEC 13, 2017 AT 01:48 AM


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Do you have spare 150 000 $ in your pocket? This is the amount of money one can easily overpay after taking the wrong kind of loan. Mortgage has both its good and bad sides. It allows us to acquire and live in our own house and stop paying rent every month. But on the other hand, it’s a huge debt and one you should be careful about.

Today we review common mistakes that most people make while taking such loan. It’s probably the biggest debt you will ever incur in your life. So, it is better to treat it with the seriousness it deserves. Here are several common mistakes you should never make or repeat!


1. You don’t know which perks and support programs you are entitled to

A house might be worth 400, 000 $ or even more. Government proposes some perks for newly married couples, families with 3 or more kids, military officers, and social workers. In some countries you would get 20% discount for a flat or house, with one of those conditions.

The only problem is that people usually don’t know when they are eligible for a perk. The governmental support system works perfectly if and when you are aware of it. However, if people don’t apply, they aren’t likely to get those perks.


2. You didn’t study bank low down programs

Big banks usually offer a wide range of options for mortgage clients. But if you are not much into the financial sphere, you probably won’t take note of the available and rewarding ideas. For example, some banks have low down programs for mortgage which work easily: if you buy insurance in some of partners’ companies, you get 5% low down payments or some other upsides for your credit.

You still need to buy insurance, and it usually doesn’t change the price much. With expensive insurance packages, even 5% off the interest rates would be quite a significant discount. Look out for gainful propositions and ensure don’t lose your chance of getting discounts!


3. You are too positive about your budget

If you never account for your money, you won’t be successful in dealing with any banking products. Mortgage is a long-term commitment, so you need to be realistic with all accounting actions. Look at how much money you’ve been saving monthly over the last one year. That’s the real amount of money you can afford to pay for a loan.

If you plan to allocate 90% of your income on mortgage so as to repay the loan within the shortest time possible, then such a plan is unreal. And this is the number one mistake that young families with no solid experience in domestic budgeting make.


4. You trust your broker too much

Mortgage brokers aren’t your best friends. The first thing you need to do is to personally check major offers for mortgage in local banks. It’s possible that you won’t require a separate broker to access such mortgage which can save you about 1-2% of the loan amount.

Usually, brokers tend to recommend to their clients those mortgages which pay the highest reward percentages. So, these guys won’t put your budget into consideration. Moreover, banks will make their interest rates a little bit higher because they need to pay the broker monthly or yearly. Therefore, it is a great idea to deal with banks directly with no middlemen at all.


5. You continue paying the same interest rates

Financial experts recommend revising mortgage conditions every 2 years or a bit more often. Normally, it costs nothing to change the conditions of the deal, turn to another bank, or ask for a reduction of interest rates. You should look at the average prices for such mortgages on the market and insist on making things fair with your broker or bank.

For this reason, make sure that the exiting conditions in your contract are OK. If you have to pay a fine for early payouts or a bank change, it means that you aren’t having the best of conditions. Spend time and review propositions on the mortgage market as that can save you thousands.


6. You believe everything the internet says

Banks and big brokers use internet advertisements and fake ratings to sell their services. Every day, hundreds of people sign up for bad deals and lose huge amounts of money, all because of believing the wrong information. Check everything twice, take a look at relevant forums, and consult your financial advisor before making the final decision.

Mortgage is not a thing to hurry up about. It is better to take your time to compare terms and conditions, or look for a good broker or bank. You can save up to 20% of your money over the next few years if only you start checking information on mortgage carefully.


7. You chose the longest repayment period possible

It’s quite a good feeling when you manage to obtain a loan. However, it won’t be a clever idea to stretch the repayment period as much as you can. For every additional year, you’ll pay a higher interest rate, and in the end it will be such a huge overpayment.

Just consider wisely what would be an optimal repayment period based on your income. Make sure that the contract will allow you to pay early with reduced interests or flexible installments. This is important because you might change your job or get promoted to a position with a higher salary.


8. You don’t choose your own repayment schedule

Every mortgage can be changed according to your needs. Remember, it’s the banks and financial companies that want you as their client. Huge level of competition on the loans market allows you to choose between companies and sometimes even to haggle for more rewarding conditions.

Choose your own repayment schedule – make sure it’s convenient for you. This means that you will get a chance choose the repayment dates and the repayment amount per month or year. Sometimes it’s more convenient to make payments every week, whereas in other cases people would rather pay every three months.


9. You don’t take into account the closing costs

There are certain expenses connected to closing out the mortgage contract with a company. For example, it can be a paid home inspection, lawyer services, or additional taxes which appear when you finally own the house. You’ll also pay for new property insurance and several other ongoing costs. If you don’t put these costs into consideration, you are likely going to pay almost twice the possible amount.

Think about these additional costs early. Find a lawyer, compare insurance rates, or conduct consultations with the tax office. If you follow these steps, you can avoid paying up to 50% of those expenses that appear at the closing out of a mortgage contract.


10. You pay too much attention to interest rates

The interest rate isn’t the only payment you need to cover. Lots of people bump into awkward situations when they take “rewarding” loans with low interest rates only to find out that they have to repay much more than in other cases.

You also need to pay close attention to insurance cost, commissions and ongoing payments, different extra payments that are included in the contract and fees for money transfer to the bank’s account. These factors are sometimes even more important than the interest rates.


11. You rely on brokers’ advice

Stay away from blogs of loan brokers and mortgage intermediaries. Of course, sometimes it’s a good idea to use the services of a broker but don’t forget that you can also save the commission money paid to the broker.

 Even if we don’t take the commission money, a direct approach when dealing with lenders will give you a wide range of options to save money, especially if you know something about finance. You should find a helpful bank clerk and have full consultations with them including pre-counting of all your future payments.