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Avoid Mortgage Mistakes

Posted by  on Apr 16, 2009
 
Mortgage regulations have changed significantly over the last few years, making your options wider than ever. Subtle changes in the way you approach mortgage shopping, and even small differences in the way you structure your mortgage, can cost or save you literally thousands of dollars and years of expense. Whether you are about to buy your first home, or are planning to make a move to your next home, it is critical that you inform yourself about the factors involved.

There are common mistakes that many homebuyers make in mortgage shopping. These can have a significant impact on the outcome of this critical negotiation. If handled correctly, these issues could result in a mortgage that will cost you less over a shorter period. There are a few mistakes people make when mortgage shopping.

You can, and should, get pre-approved for a mortgage before you go looking for a home. Pre-approval is easy, and can give you complete peace-of-mind when shopping for your home. Your local lending institution can provide you with written pre-approval for you at no cost and no obligation, and it can all be done quite easily over-the-phone. More than just a verbal approval from your lending institution, a written pre-approval is as good as money in the bank. It entails a completed credit application, and a certificate, which guarantees you a mortgage to the specified level when you find the home you are looking for.

Know what monthly dollar amount you feel comfortable committing to. When you discuss mortgage pre-approval with your lending institution, find out what level you qualify for, but also pre-assess for yourself what monthly dollar amount you feel comfortable committing to. Your situation may give you a pre-approval amount that is higher or lower than the amount of money you would want to pay out each month. By working back and forth with your lending institution to determine what this monthly amount is, and what value of home this translates into at today’s rates, you won’t waste time looking at homes that are not in your price range.

You should be thinking about your long-term goals, and expected situation, to determine the type of mortgage that will best suit your needs. Some questions that you can ask yourself before you commit to a certain type of mortgage include: How long do you think you will own this home? What direction are interest rates going in, and how quickly? Is your income expected to change in the near term, influencing how much money you can afford to pay to your mortgage? The answers to these and other questions will help you determine the most appropriate mortgage you should be seeking. Make sure you understand what prepayment privileges and payment frequency options are available to you. Payments that are more frequent can shave years off your mortgage. Simply by structuring your payments so that they come out more frequently, you will significantly lessen the amount of interest that you will be. For the same reason, authorized pre-payment of a certain percentage of your mortgage, or an increase in the amount you pay monthly, will have a major impact on the number of years you will have to pay and could shorten your payment term considerably.

These two payment options can cut years off your mortgage, and save you thousands of dollars in interest. However, not every mortgage has these prepayment privileges built in, so make sure you ask the proper questions.

A portable mortgage, where available, is one that you can carry with you when you buy your next home and avoid paying any discharge penalties.

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