Although your mortgage can provide you with many avenues to save money, it’s wise to be aware of common mortgage mistakes.
When you’re considering purchasing a new home or doing anything to alter how you establish and pay your mortgage, avoid the following hazards:
- Adjustable Rate Mortgages, known as “ARMs.” Although an ARM might save you a lot of money during the first few years you pay your mortgage payment, there may come a time when the interest rate – and your monthly payment – rises too high to be affordable.
- If your interest rate becomes too high to afford, you have no control over that rate, because you agreed to the unknown early on in the process of accepting the mortgage loan as it was designed. If you intend to stay in your house a long time, you’ll want to definitely avoid an ARM.
- When should you consider an ARM? An ARM might work if you’re planning on selling the home and moving within the first couple of years of home ownership.
- Interest only mortgages. An interest only loan means that for the first several years of the loan, you’re paying nothing toward the principal amount you borrowed and 100% toward the interest. Your principal will, therefore, not reduce at all over these years, which is a disadvantage for you.
- Plus, you’ll eventually get hit with having to pay the total amount of that principal over a shorter period of time.
- When should you consider an interest only mortgage? If you’re planning to move during the first few years of the mortgage, this type of loan might work.
- Committing to a shorter term loan than you can comfortably afford. Although a shorter term mortgage sounds great can you comfortably pay the increased monthly payment on time consistently? Keep in mind that it’s wiser to spend beneath your means rather than above or right up to the top of them.
- Ensure you look at all your incoming funds and outgoing expenditures and figure up total monthly expenses before you commit too quickly to a shorter term mortgage.
- Consider that your income could reduce in the future due to some reason that you may not know about right now, (like an injury, company lay-off, or an employer closing down). And, those unknown events could affect your ability to pay a high monthly mortgage payment.
- Not researching the lender. The unfortunate fact is that there are predatory mortgage companies and banks that you should avoid. Even though it puts more work on you, do your upfront research on the lending institutions you’re considering doing business with. Are they a member of the Better Business Bureau? Check out their online reviews. In the long haul, you’ll be better off for it.
- Agreeing to add your closing costs into your loan. Never a good plan, this decision can easily cost you in five figures over the term of your mortgage. Always pay your closing costs, (or have the seller pay them), upfront.
- Obtaining a mortgage loan that penalizes you for paying it off early. You might want to pay extra mortgage payments throughout the year to pay down your principal quicker, so delve into the details of your loan to ensure there isn’t a prepayment penalty.
- When your loan penalizes you for paying it off early, then you’re not saving much money from your efforts to get out from under your house payment.
We all hope to receive the best deals we can on our mortgages. And, we want to do whatever is possible to save money. However, in your quest to save money on your mortgage, exercise special cautions regarding these issues. When you do, you can be confident of successfully achieving your financial goals.
Did you know we can help you:
- determine the amount of money you are qualified to borrow
- select the type of mortgage that best suits your financial needs
- improve your credit profile if you are currently having difficulties reflected in your credit score
Let us help you avoid these and other mortgage mistakes! Our team of Senior Mortgage Bankers is here to help you make the best decision for your situation, while making the entire experience comfortable and convenient for you.
Helping Hoosiers Home