Many people make expensive, easily avoidable mistakes when shopping for a mortgage. “Borrowers who don’t do their homework often end up paying more than they should, and in some cases that extra cost can really hurt,” says Paul Sian, a real estate lawyer and Realtor with HER Realtors in Cincinnati.
Below are 5 key mistakes to avoid making.
Fixing your entire mortgage – While there are some very tempting fixed rates out there, if you choose to fix your entire loan you are also locking in how fast (or slow in most cases) you can pay down your mortgage. The payments will be locked into a ‘payment regime’ with interest making up to 90% of the total payment. You should always have a part (even if it’s small) of your loan floating that you can pay down faster.
Not utilizing your income – Offsetting interest charges with your savings should be a no-brainer. It’s simply using your income to reduce your loan balance until you need to spend it. You will have a mortgage for decades and this simple tip will save you thousands of dollars in interest.
Having other debt – You need to be focused with your debt. Only having mortgage debt will help minimise interest costs and be much easier to manage. If you do have other debt, consolidate it. You’ll will free up money which, if put into your mortgage, will give you the ability to pay it down quicker.
Only making the minimum monthly repayments – This is never going to be in your benefit. It means you will be trapped in a 25-30-year loan term which will come at a very high cost. Increasing your repayments by just $5 a week could save you $20,000 over the life of your mortgage.
Blindly Trusting your lender – Be realistic! It is highly profitable for your lender to allow you to have a mortgage as long as possible, so your default set up is likely to err towards this. Understanding this will allow you to look for better options than the standard ‘default’ mortgage you will likely end up with if you don’t shop around.
If one or more of the above apply to you, I highly recommend reviewing your mortgage as you will certainly be costing yourself money. Don’t hesitate to get in contact with us to discuss this further.