Mortgage Mistakes to Avoid in 2017
How do you avoid mortgage mistakes? A majority of homeowners over the years have assumed ownership of their homes by paying a mortgage. A mortgage whose terms have been well understood and whose payments are made on time can be your best tool towards home ownership. If this is the case, then why do so many complain about their mortgage rates and payments? Unfortunately, not all of us go through the fine print on our mortgage agreements. This could cost us unforeseen fees and payments along with other hardships. This is not the way you want to handle your mortgage for a comfortable life ahead. As we look into the details of a mortgage payment, we have gathered a list of mistakes that most mortgage payers make while pursuing their home ownership plans. Remove a mortgage mistake from this list and have an easier payment process starting now.
Mortgage Mistake 1: Committing too much of your income to mortgage payments
When you dedicate an excessively large portion of your income to paying your mortgage, you have very little money left for anything else. Consequently, you cannot make changes such as renovations, replacing an old car or even dedicating part of your income to a college fund. You do not want your choice in paying larger installments to become a mistake you have to regret until the loan is paid in full.
Rather than budget excessively for your mortgage and ignore other areas, allocate a reasonable amount of money each month for an installment. For us, any amount above 28 percent of your income pre-tax is too much. You can find a more detailed account of how much you should spend on your house here.
Mortgage Mistake 2: Not considering all loan options
Most of us compare prices from many retailers for the same product online. We will spend a considerable period in the grocery store scrutinizing prices so as to get the best deal. In the same way, reading through the terms of different mortgage plans can help you secure the most convenient option for you. In some cases, it could save you thousands of dollars each year. As you make a decision on the house, ensure you also go through all possible financing options. Find out the terms for each mortgage and choose the best plan for you.
Mortgage Mistake 3: Ignoring your mortgage’s Annual Percentage Rate
Some financial institutions greatly advertise their low-interest rates. As a result, a majority of people get attracted to the loan and end up ignoring the APR on the payment plan. This is where a lender covers up for a low-interest rate. To know the actual cost of your mortgage plan, ensure you have gone through your bank’s truth-in-lending disclosure forms.
Mortgage Mistake 4: Putting down a very small amount on your initial payment
For most mortgage plans, the bank requires you to pay an initial fee of at least 20 percent to avoid paying mortgage insurance. This price also allows you to get their best rates. However, if you pay a price lower than the down payment, you have to pay the mortgage’s insurance premiums on top of your monthly payments. On average, this adds $100 to your monthly costs.
Notably, this insurance protects the bank and not you as their client. This is because the insurance firm will pay off a part of their loss in case you fail to complete mortgage payments and have to be foreclosed.
Do yourself a favor and don’t get into these mistakes. Get the best mortgage deal for you and settle into paying it at a comfortable rate.