8 Mortgage Misunderstandings That Could Cost You
Source: Yahoo Finance
There are many mortgage misunderstandings that could cost you a lot. Spend a little time learning more about mortgages, and you might be able to save hundreds, if not thousands, of dollars.
1. Ignoring your credit score. Your credit score has a major influence on the interest rate that lenders will offer you. If you don’t have a good one, consider spending some time beefing it up before starting to buy a home.
2. Thinking it’s not worth shopping around for a mortgage. Don’t assume that you’ll be offered pretty much the same deal wherever you go. Different lenders use different calculations when they assess you and offer you interest rates.
3. Getting a bigger mortgage than you can really afford. When you’re house hunting, it will be tempting to look a bit beyond your price range. Don’t buy a home that will be expensive enough to have you stretched thin financially.
4. Getting pre-qualified, not pre-approved. Once you know what loan you want and from which lender, don’t wait until you find the home of your dreams to start the paperwork. Get pre-approved for the loan before you go shopping. This has several advantages.
5. Getting the wrong kind of mortgage. Don’t assume that a standard 30-year fixed-rate mortgage will serve you best. It might, but consider alternatives, too. For example, you need to decide between a 15-year or 30-year loan (other time frames are also available), and between a fixed-rate mortgage or adjustable-rate mortgage (ARM).
6. Making a small down payment. Putting less than 20% down on a new home means you’ll have to take on an extra loan in the form of private mortgage insurance (PMI), which will increase your monthly payment.
7. Paying off your mortgage early. It can be good to pay off your mortgage early, and not have a big loan on your shoulders — especially as you enter retirement. But paying off your mortgage early is not always the best thing to do.
8. Thinking it’s not worth refinancing. Finally, once you have a mortgage, don’t assume that it’s not worth refinancing. If the interest rate you might get on a new loan is about a percentage point lower than your current rate, it may well be worth refinancing.
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