Common Mistakes People Make When Looking For a Mortgage
When you’re looking for a mortgage, it’s easy to get lured in by a promotional interest rate or be lost in trying to get the right kind of mortgage. This usually results in some key elements being overlooked, such as payments, prepayment options/penalties, etc. Deciphering mortgage terminology, knowing what to look for, and understanding the different types of mortgages can prepare you for the application process.
Do you know how to go shopping for a mortgage? If not you could pay a heavy price for settling for the wrong one. Therefore, before signing on the dotted line, you should learn about some of the common mistakes that you’ll want to avoid when getting a mortgage. Deb Murdoch - Saskatoon Mortgage Broker has got you covered! Read on to learn about the most common mistakes people make when looking for a mortgage.
1. Assuming all mortgages are the same - judging the best mortgage to be the one with the best rate
Since people do not buy a home every day or their mortgage does not come up for renewal every day, or they do not need refinancing every day, looking for the best mortgage can be quite confusing. Add the sheer noise out there on the internet and terms used interchangeably and things can get really tedious and confusing. To correct this, customers should be looking for advice from someone who has their best interest in mind and the experience to give them great advice. You need to know and trust the person giving you advice on most likely the biggest purchase of your life.
2. Not putting a strategy in place to pay off your mortgage faster
By paying off your mortgage faster, you will pay less interest overall. Depending on the client’s situation, there are different strategies and combinations of them that can be implemented. You can either opt for a seven year+plan that will have you start with a variable rate (typically a lower rate) and watch to lock into a 5-year rate when rates start to climb. When in the variable rate, increase your payment using your prepayment privileges to the amount of the 5-year fixed rate. You will then be taking advantage of the lower variable rate period to maximize paying down your principal. I call this the 7 YEAR+ PLAN.
Another option would be to use your prepayment privileges. Every year you will have a certain percentage of the original mortgage amount to pay down without penalty.
Thirdly, a biweekly accelerated payment frequency usually works well for people that are paid every two weeks. This means you will make 26 payments in the year. Compared to what you would pay if you were on monthly payments, it will result in one entire extra month of payments and thus, the principal gets paid down faster.
3. Not paying attention to keeping your credit in good shape
Lenders’ main topics of evaluation with mortgage applications are income, credit, down payment and location. If your credit is bruised, it is the one thing in the evaluation that will take time to correct. So if you are in a hurry to purchase, it could be a stumbling block for you. Making your payments on time, ensuring that you do not go over the limit and limiting the number of inquiries made on your credit bureau will help improve your credit.
4. Not understanding rates
All rates are not created the same. There are rates for insured mortgages; rates for conventional mortgages with a 25-year amortization, and rates for conventional mortgages with 30-year amortizations. Within these categories, the rates differ depending on the lender (bank or monoline) and based on the type of property (owner-occupied or investment). So when asking for a rate, you need to be specific in what you are asking for. Provide the information regarding the owner type, percentage of down payment, property location, etc. This will go a long way in getting the proper rate quoted to you.
5. Misunderstanding the process (specifically the length of time) it takes to purchase/finance a home
Understanding the process/logistics (timing) of purchasing a home is important. Some steps are required to be taken and they all take time. To avoid the stress of having too short a possession date and time, get preapproved and ask for a written timeline of the steps and timing.
6. Assuming all financial institutions are created equal
Customers make this mistake because they do not understand buying a home and the function/interest of the people involved with it. Customers should care so that they get the best advice and the stress in buying is significantly reduced. Customers should do their homework on selecting the person who will help them finance their home. When evaluating, access to products, reputation, referrals, experience, communication, and corporate company are all important things to consider.
To avoid these and other mistakes people make when looking for a mortgage, reach out to Deb Murdoch - Saskatoon Mortgage Broker. Purchasing a home is an important decision and you should be confident about your investment. I will work with you personally to offer you valuable insight throughout the process, save you time and find the mortgage that best suits your situation.
I am part of TMG The Mortgage Group – an award-winning Canadian mortgage brokerage with a national team of over 800 qualified and accredited mortgage brokers, agents and associates providing residential and commercial mortgage services. Since 1990, TMG has helped over a quarter million Canadians get the best financing solutions and mortgage rates through Canadian mortgage lenders from coast to coast.