Your Guide to a Cost-Effective Mortgage: Mistakes to Avoid

Buying a home is a big financial commitment, and making mistakes with your mortgage can cost you a lot of money. To help you avoid these pitfalls, we’ve put together some common mortgage mistakes and how to avoid them.

1. Be Cautious with Adjustable Rate Mortgages (ARMs)

• Understand the Risks: ARMs can start with lower payments, but the interest rate can rise significantly over time.

• Long-term Plans: If you plan to stay in your home for many years, a fixed-rate mortgage is usually safer.

• Short-term Exceptions: An ARM might be suitable if you plan to move within a few years.

2. Beware of Interest-Only Mortgages

• No Principal Payments: For the initial period, you're only paying interest, so your principal remains unchanged.

• Future Financial Burden: You'll eventually have to pay off the principal, often over a shorter period, leading to higher payments.

• When It Works: If you plan to sell your home within a few years, this might be an option.

3. Avoid Shorter-Term Loans You Can't Afford

• Evaluate Your Budget: Ensure you can comfortably make the higher monthly payments of a shorter-term loan.

• Future Uncertainties: Consider potential future income changes or unexpected expenses.

• Long-term Stability: It's better to have a manageable payment than to stretch your budget too thin.

4. Research Brokers and Lenders

• Avoid Predatory Lenders: Some mortgage companies might not have your best interests in mind.

• Do Your Homework: Look into the reputation and history of potential lenders before making a decision.

• Better Safe Than Sorry: Taking the time to research can save you money and stress in the long run.

5. Pay Closing Costs Upfront

• Avoid Adding to Loan: Rolling closing costs into your mortgage can add thousands of dollars in interest over the life of the loan.

• Pay Upfront: If possible, pay these costs out-of-pocket or negotiate for the seller to cover them.

6. Check for Prepayment Penalties

• Read the Fine Print: Some loans penalize you for paying off your mortgage early.

• Save Money: Ensure there are no penalties for making extra payments to reduce your principal faster.

7. Hire a Real Estate Attorney

• Professional Help: An attorney can review your mortgage documents to ensure everything is in your favor.

• Worth the Cost: Spending a few hundred dollars on legal advice can prevent costly mistakes.

• Find a Good Attorney: Ask for recommendations and give your attorney enough time to thoroughly review your documents.

By avoiding these common mortgage mistakes, you can save money and achieve your financial goals more confidently.