If you think finding the perfect house is the hardest part about buying a property, think again. Not only do you have to get your finances in order and get mortgage approval you also need to sift through all the advice given to from those who “mean well”. Although people who have gone through the mortgage process do have insights into a world you may not know about, the world of mortgages has changed and if they bought a house even ten years ago a lot has changed since then. Make sure you do your own research and follow what is happening now in the market. Here are 5 mortgage myths demystified;
#1: Get a Mortgage from your trusted financial institution where you hold an account
While this might have been a thing in the past were you had to show your worth through a long ongoing relationship with your banker that has been with the same financial institution their whole 30 year career, this is no longer the case. You may end up finding that, yes, the best deal is to be had from your own bank, but make sure you check other options. Getting a mortgage broker can be extremely beneficial, as they have a wider array of mortgages to choose from and can sometimes find you a better deal than your own financial institution who can only sell you their own mortgage products.
#2: One Mortgage to Rule Them All
It has been stated many times that when you get your first mortgage you should get a 30-year fixed rate mortgage with something like a 5-year term. This is a lie. While the 30-year fixed rate mortgage with a 5-year term may work for your circumstances you need to know that there are other options and it may not. For example if you are buying a one bedroom flat as a “starter home” but plan to move in two years to a larger home to start a family having a 5-year term mortgage may mean that you will have to payout a large penalty to break the mortgage and it can cost you a fortune depending on how the market is at that time. Make sure you pinpoint what you need out of a mortgage and talk with a specialist about all your options.
#3: Borrow The Maximum That You Are Allowed
Yikes! Nowadays you can find lenders that will lend you a mortgage that takes 50% of your monthly income as a payment. While some people can afford this, others may not be able to. Borrowing such a large amount could leave you house poor, what if your new house needs repairs or you want to take a vacation or you need to pay for your child’s university? Can you really afford for your house payments to take 50% of your earnings? The best way to avoid this is to make a financial plan that includes savings, expenses and financial goals for the future, knowing these things will help you see what you can truly afford. Know your limit and stick with it.
#4: Go For The Lowest Interest Rate
Making sure that you mortgage works for you is the best way to chose one, don’t just base it on the lowest interest rate available. For instance, if the lowest rate available right now is a variable interest rate mortgage then you may be tempted to take it. However, if your financial situation requires you to budget carefully then this option may not be the best. A variable rate mortgage means that your rate can change in the future. If rates go up and you have only budget for the lower rate than things are going to get even tighter and that can be too stressful for some. Talking to the experts allows you to see the ups and downs of all your options.
#5: Payoff Your Mortgage As Quickly As Possible
Is this really the best option for you? Maybe, but it could also lead you to lose more money than you want to. When you look at all your debt together, your mortgage may not be the one that is costing you the most money. If per say you have an outstanding credit card debt with an interest rate of 13% versus your mortgage which most likely will be sitting at a much lower rate (say 4%) then it is way more cost effective to pay off the higher interest rate debt first.
These are just 5 of the mortgage myths being passed around, make sure you don’t fall victim to the wrong advice. Take advice from someone who is working in the industry currently and knows what is truly happening. Do your own research and make your own choices that benefit your current situation, we are all different and our mortgages should be as well.