Mortgages are a given if you want to own your own house, and stop paying rent to live in someone else’s. But they are something that most people tend to make mistakes on, which can easily end up costing them upwards of $100,000 to $150,000 in overpay alone!
Although taking out a mortgage has it’s ups and downs, if you know how to properly plan and deal with it, you can get the best out of it. It’s one of the biggest life decisions you’ll probably ever make, so you should be careful and informed about every move.
Here are some of the most common mistakes people tend to make when they take out mortgages, and how you can avoid them:
1. You’re Unaware Of All The Perks Available To You
The government isn’t always out to get you, sometimes they might help you out too. In fact, many countries have schemes in place where certain groups of people (government workers, military officers, families with a certain amount of kids, newly married couples, etc.) are able to get a discount or some other perk on their mortgage. The important thing is to know what and when you’re eligible for a certain perk, and apply for it.
Given that a new house can cost about $400,000 or more, we bet you can take any little help you can get!
2. You’re Not Thorough With Your Bank’s Low Down Programs
If you’re taking the mortgage from a big bank, chances are they offer low down programs. These are essentially “discounts” on your payment or other financial rewards for things like signing up for insurance (which you have to do either way) with a company they have partnered with.
Again, a 5% discount might not seem like much, but it can make a significant difference when it comes to such a large payment.
3. You Make Unrealistic Budgets
If you’ve never before accounted for all your income and expenses, you need to start doing that immediately. Taking on such a big responsibility is no joke, so you need to know how much money you actually have. The money you actually save at the end of each month after all of your expenses is how much you can afford to pay for a loan.
One of the biggest mistakes people make, especially those who are young and inexperienced in budgeting, is being too unrealistic about this. For e.g. you cannot expect to pay 90% of your income as loan payment in an attempt to get the shortest payback period; that’s just not realistic!
4. You Think Your Broker Knows Best
Let’s get one thing straight, mortgage brokers don’t have your best interests at heart.
The first thing you should do is check for offers from local banks yourself. Brokers often recommend mortgage plans that give the highest reward packages, which means they’ll give less importance to your budget. They might convince you to pick something that you end up not liking later. Go with your gut, and fight for what you want. Brokers are often sweet talkers, and they’ll make you feel like their best friend, so don’t fall for it!
5. You Pay The Same Interest Rates Throughout
According to financial experts, you should be revisiting the conditions of your mortgage at least every 2 years, more often if possible. This is because market conditions won’t stay the same. If you are able to negotiate a better deal for yourself, or even switch to a bank that gives you better rates, you can! Many people do not know that this does not cost you a dime.
If you’re having to pay fines for early payouts or a bank change, you’re being duped. Keeping in touch with fluctuations in the mortgage market can end up saving you thousands of dollars!
6. You Believe Everything The Advertisement Says
Banks and brokers like to advertise their services in their most shiny and desirable form. Do not ever take them at face value, because you can be sure there are more than a few thorns in the deal that they’re disguising. Go over all the terms twice, and then once again for good measure. Always seek advice from your financial adviser before making any big decisions.
It’s always better to take your time and patiently make choices for something as massive as a mortgage. It may help you save tons of money in the long run.
7. You Pick The Longest Payment Period Possible
Picking the longest payment period might seem like it puts the least amount of pressure on you each month, but in the end you’ll end up overpaying way more than you have to. For instance, every additional year will add on to your interest rate!
Review your income and expenses, and pick the right payment scheme according to that. Also make sure to review the terms of your contract to allow for reduced interest or flexible income. You won’t have the same job forever, so you might be able to pay your mortgage off earlier than expected.
8. You Don’t Choose Your Own Schemes
Mortgages aren’t a set scheme, they can be adhered according to each person. Remember that you have the power; banks and financial institutions want your patronage, not the other way around. So make sure to ask for and even haggle for what you want. There’s plenty of fish in the sea, so if your bank isn’t giving you what you want, look to their competitors.
Pick the payment periods (weekly, monthly, quarterly, etc.), and when you pay it. Haggle for more rewards and the right terms for you. Be the boss of your own mortgage scheme!
9. You Disregard Mortgage Closing Costs
This might come as a shocker to you, but closing off a mortgage comes with its own separate set of costs that you will have to pay! These may be in the form of lawyers, paid home inspections, or additional taxes that occur when you finally actually own the house.
Not considering these costs at the get-go can mean you end up paying double the money than you really need to. Make sure to consult a lawyer or the tax office, and compare insurance rates to minimize your closing costs.
10. You Only Care About Interest Rates
Getting the lowest interest rates is obviously ideal, but if you’re thinking only about interest rates, you’re probably missing the hidden costs that can rack the final payment up considerably. These include things like insurance costs, commissions and ongoing payments, extra payments included in the contract, and even fees for transferring money to the bank’s account. Make sure to consider all costs, not just interest rates, because they are all equally important.
11. You’re Afraid To Deal With The Bank Directly
As we said above, a broker isn’t the only way to go. They aren’t just looking out for you, but for them bank and themselves as well. Furthermore, banks will also need pay to your broker a monthly or yearly commission, which – surprise, surprise – will come out of your pocket (even if you don’t know it).
Don’t be afraid to deal with the bank directly, especially if you yourself are adequately informed about finance. Book consultations with a helpful bank clerk, and go over everything with a fine-toothed comb. Remember, be smart and ask for help if you need it!