5 FINANCIAL MISTAKES HOMEOWNERS MAKE WITH THEIR MORTGAGE
- Not combining high interest debt into low interest mortgage.
- Paying “fees” to get a lower rate
- Not taking into account their long-term goals
- Taking a 5-year rate when alternate options can be cheaper. Like 3-4 years mortgage term
- Having a mortgage with a lender that has penalties and many limitations.
- Not consolidating high interest loans in their mortgage– which can include credit or car loans. Often homeowners don’t want to use the equity from their home, or want to pay off the debt. Normally debt occurs because of inefficient budgeting, or understanding what your income is versus spending. There are many homeowners where the mortgage payment is the main factor in their monthly budget. Also, making minimum payments can take you YEARS to pay off.
- Paying Fees to get a lower rate. Nothing comes for free. In all honesty, you go to the bank and their goal is to make money! Chasing rates can cost you more money in the long run.
If you are self-employed and offered a $450,000.00 2-year term mortgage with two options and both amortized over 25 years.
A rate of 4.49% and a $4,500.00 fee added to the mortgage
$452,500.00 – payments $2,513.01 per month and total payments of $60,256.32 over the 2 years and mortgage balance of $433,754.57Option 2 a rate of 4.99% and no fee
$450,000.00 – payments $2,614.66 per month and total payments of $62,751.84 over the 2 years and mortgage balance of $430,805.31
By taking the lower rate with the fee means $2,495.49 LESS is paid after 2 years but your outstanding balance is $2,949.26 more so there is relative no savings as the lender bases each deal on risk and they manipulate the fee, no fee option to charge you the same amount for the risk they are taking.
- The long-term goal financial planning. Taking 2-5 year goals into consideration is good for a variety of reasons. Some include: better rates, lower payments, capitalizing on the equity in your home to pay off any type of debt. Fact: The average homeowner refinances every 3 years of a 5-year term and pays a penalty.
- Taking a 5-year mortgage rate when other terms have better rates. Many times, the 2-4-year rates can offer significant savings over opting for a 5-year rate. The longer you take the term, the higher the cost to you. Worrying about how rates will be in 3-5 years from now should be taken into consideration, but should not always the guiding factor.
Here is an example of a $450,000 mortgage and what the difference in what you will owe on a 3-year term.
2.60% – payments are $1,018.61 every two weeks = $410,045.15 owing in 3 years
2.90% – payments are $1,052.66 every two weeks = $411,483.26 owing in 3 years.
Your payment of $34.05 MORE every two weeks ($2,860.20 total) leaves you with owing $1,481.11 MORE in 3 years.
- Know your mortgage, all mortgages come with pre-payment penalties. This is when you must break your mortgage due to an emergency or you need to consolidate debt you could be hit with a very high pre-payment penalty. We will guide you to a mortgage that does not have those sticker shock penalties that your traditional bank guide you to. The old saying is that if you fail to plan you pan to fail.
Get a plan today! If you have any questions, please contact a Sunlite Mortgage agent at 1.877.385.6267 or visit www.sunlitemortgage.com.