Some mistakes can and should be avoided especially if they end up costing you lots of cash. Mortgage mistakes fall in that category, as the amount on any mortgage borrowed is usually far greater than the total liability most people have. What are these mistakes and how can they be avoided?
1- I’m loyal to my bank and they will provide me with the best mortgage out there!
So you have been loyal to your bank and have banked with them all of your life. Are they going to provide you with the best of what’s out there? Your bank has had your business for so many years and unfortunately they take that business for granted. They can’t offer you the best of what’s out there as they can only offer you what they have (their own products). Sometimes the bank does match or lower the rate of the product offered just to keep you around but for many it is not the case. For many on renewal time, they make you do all the legwork just to match another more competitive lender. Is that fair or do you think after banking with them all your life, you should deserve the best up front
2- Failing to shop around
You shop around for small things, so shop around for the one of the biggest financial decisions you make. Using a broker is the best way to shop around. You have your own personal shopper looking for best mortgage deals representing you not the lender. They pull your credit once and submit the same application to the best lenders on your behalf. Going “rate shopping” on your own is frustrating, very time consuming and will hurt your credit.
3- I don’t need to get pre-approved. I know I will qualify
A pre approval process both allows you to understand the real costs involved such as monthly costs and closing costs and also hold the rate for so you are protected against rate increase. All at no cost to you! (Think of it as a big safety blanket. If rates decline you get the best rate at the time you are ready, if they go up, you have a nice piece of paper guaranteeing your rate for a determined time).
4- I am waiting for rates to decline even more/ Rates are not going up.
Waiting for rates to decline is a gamble if that’s what is holding you back. Maybe rates decrease; maybe they go up but also, lending guidelines also change. In Canada we have seen them get much tighter year after year and the biggest impact has been to first time homebuyers. With Rates on the incline, purchasing power comes down. Along with rising real estate prices, you might miss the boat all together.
5- I want to borrow the maximum I can for this mortgage; I will make it work.
Some people really do make it work. But remember owning your home shouldn’t mean saying goodbye to your life. Don’t over leverage yourself and create a budget that you are comfortable with. Don’t rely on big bonuses and hypothetical raises. Plan ahead and realize that every situation can change. Prepare for the rainy days/months in case they come.
6- It’s all about the rate!
Yes, we are consumers and we always want to find the best deal! The rate should only be a component when choosing the right mortgages not the deciding factor. What many consumers don’t know is the different types of mortgages offered to suit their needs. Will you be moving a few years down the line? Do you plan on paying off your mortgage faster? What are your options on a renewal? Are you going to be stuck with that lender because of collateral charges? How is pre payment charges calculated? What are the extras required by that lender in order for you to bank with them? What is the overall service level with the lender?
7- My father/ mother/ aunt/ uncle/neighbor etc… Got this mortgage and that’s what I want.
Mortgages should be unique to your situation. Everyone is different and there is no such a thing as the right mortgage for everyone. Some people need greater flexibility in making payments, some are risk takers, and some need a product that will allow them to re advance funds when needed. Having an open mind and looking for what’s the most value to your situation can save you lots of money and frustration down the road.
8- I don’t want to go to a mortgage broker because they will require lots of documents
Whether you go to a broker or your bank, the same documents will be required. Generally, 2-years employment history, employment letter, paystub, down payment information and an application are the bulk of it. Some brokers asks for everything up front to give you enough time to locate them so you are not extra stressed when removing subjects. Some ask for nothing up front and harass you until they get everything. If your mortgage broker, bank representative is not asking for the documents, they are simply not doing their job. Finding out as much information as possible about your situation helps put you in a mortgage that is right for you.
9- I don’t want to use a mortgage broker because it would cost money.
Mortgage brokers services are free for all qualified clients. The only time that a broker charges a fee is when no none-fee lender accepts the deal. This would only happen if something in the mix were off and therefore putting a higher risk for the lender (income, property, and credit). A professional mortgage broker will always communicate with their clients if there is a possibility that a fee will incur.
10- Keep things constant until you sign the dotted line
You have your pre approval so you think you are guaranteed a mortgage. Truth is, your pre approval is only good with the current conditions. Don’t change your job, don’t apply for more credit, and keep your situation as much the same as possible as the day you got your pre approval. Pre-approvals are conditional approvals not absolute and for many lenders your file is not even thoroughly reviewed until it becomes a live deal.
my mortgage is up for renewal and my bank has offered me 2.89%(5 year closed). I have been with them for 15 years. I have approx. 120,000 equity in my home but they will not give me an equity takeout or any refinancing because of credit issues. Our family has had serious medical bills but we have recovered and making all payments the last 2 years.(mortgage has always been on time). We do have accounts in collections(credit cards , etc) but are paying the collections. We have a great debt/ratio. We are looking for refinancing to pay off a secured loan of 25000 (7 years old and still the same balance)at an interest rate of 26% and home renovations. Since we were denied by our own bank, I went through a mortgage broker to look for alternatives. We got an approval through a lender for 5.2% for 1 year to pay out our present mortgage, all of our collection accounts and our 25000 loan. Not sure what to do here?? Any advice?