There are certain things that you only learn about mortgage once you had one for a while; after all, Insights are only gain after experiences. Here is a list of 9 potential mistakes you can avoid when getting your first mortgage, or if you are in the process of re-financing.
1. Shop around
So you’ve been loyal to your bank for as long as you’ve had money. It makes sense for you to get a mortgage with them. They have all you’re details already, and they can make it super easy for you to get a mortgage.
Whether it is because you think all the banks offer the same mortgage rates, or that you can’t deal with changing banks, people often don’t shop around when getting a mortgage. You could be missing out on potentially thousands of saved dollars by not shopping around.
So go and shop around, see what different banks are offering. And if you want, you could even go and see a mortgage broker. But remember, brokers may not have the best deal for you either. The banks pay them, and if one bank is offering a better incentive than the others, the broker is more likely to persuade you to go with that bank.
2. You can do better than the advertised rates
What is the point of advertised rates? All the major banks advertised rates are generally about the same. The thing to know is that most banks will nearly always give you a discounted rate to what they advertised. The banks don’t want to advertise these rates as they would promote more competition.
The banks often quote you a discounted rate that will only be available for a limited time. In marketing, it is done to make you feel special as a customer and invoke a sense of scarcity—all in the hopes of selling you something, the mortgage.
So don’t settle for the advertised rates, push hard for a discount. And if they won’t move on it. Go to another bank. And don’t feel rushed into anything because an offer is about to expire. They generally will offer you the same deal next week. See point 1 and shop around.
3. Consider your mortgage structure
You may think that putting your entire mortgage into one fixed rate will work best. It makes it easy for cash flow as your payment are always the same. But what if you have some extra cash that you want to use to pay down the mortgage with. The banks will often charge you if you try to pay extra while your mortgage is fixed.
Ok, so you want to hedge your bets and split your mortgage and fix it over multiple terms. This is a great idea if you think interest rates are on the rise. But, when your shortest term comes up for renewal, the banks may not offer you a great deal because they know that you have the other half of your mortgage fixed with them already. You are locked in with them.
What about revolving credit? What about a floating proportion.
Basically, you need to know what structure will suit you best. Is cash flow and stability important? Is paying extra important? Figure out a structure before you go an apply for a mortgage.
4. Don’t let the bank persuade you
The banks will often quote you a mortgage based on a 30-year term. The longest term that is available. And this is to their benefit. The longer you have a mortgage, the more interest they will earn.
A 30-year term will also look the most attractive to you as the payments are as low as they possibly could be. Consider increasing the payment slightly. This has several benefits. One, you pay off your mortgage faster. Two, you save on interest costs to the bank. And three, if interest rates do rise, you can increase your term to keep your payments down if you are strapped for cash flow.
5. Pay weekly instead of fortnightly or monthly
If you really want to save as much as you can on your mortgage consider paying weekly.
When you pay monthly, there is more time for interest to be earned on every dollar you haven’t paid back yet. If you pay weekly, this time is shortened. However, the savings will only be in the 10s to 100’s of dollars. Saving is saving.
6. Ask for a cashback incentive
Banks will often entice customers to take a mortgage by offering cashback to help with lawyers fees. Ask your bank what they are willing to offer you. These can often be in the thousands. And you can always ask for more than what they have offered you and see if they are willing to increase the bonus.
The caveat with these cash incentives is that they can come with strings attached. You need to stay with the bank for x number of years or have to pay back the incentive.
Remember, these incentives should be seen as a bonus, and they should not be used to sway you into accepting a higher interest rate over a competing bank offering you a lower rate.
7. Ask for fee-free credit cards
When signing up for a mortgage, banks will often entice you with offers of fee-free credit cards or other bonuses. If you already use a credit card, consider asking whether they will give you a deal on a credit card.
8. Shop around for home insurance
Banks require home insurance on the house that is being mortgaged. So it makes sense for them to be a broker for insurance companies. This makes the entire process easy. Getting your mortgage and insurance sorted from one bank.
I would suggest that you should consider shopping around insurance companies to see what the premiums are like point number one. You may find that your bank is a broker, not an insurance provider whose premiums are higher.
Once you have insurance from another provider, you need to let them know to email your bank to let them know you have insurance. It’s not that difficult.
9. Pay more than the minimum requirement
Increasing your payment by a small amount can wipe thousands in accrued interest over the lifetime of your mortgage. Not only that, it gives you a buffer if you ever need to increase your cash flow.
Using some of these points I managed to save over $5000 on my mortgage when it came to re-finance my home loan.
Have you made any mistakes when it comes to getting a mortgage that could have been avoided?
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