After looking into some of the mortgage mistakes first home buyers make when buying their first home last week I thought I’d dig even further. So this week we’re going through some of the biggest, most colossal mortgage mistakes to avoid for all people when getting a mortgage.
Table of Contents
1. Getting Too Big A House / Loan
One of the very biggest and most unnoticed common mortgage application mistakes actually happens way, way before you even start looking for a bank or specific mortgage package. It happens in your head when you don’t question the house you’re looking for.
Usually most people over time build up an idea in their mind of what their house should be like. How many rooms it should have. How close it should be to their work/family etc. The age of it, whether it’s a modern or classic design, how big a backyard it has and so on.
This is all fine, however like so many decisions we make it’s usually based on emotion and not cold, hard facts.
Now if you’re buying a new USB charger for your phone sure, go nuts and use emotion to decide which one you buy as honestly it’s not that big of a deal. When it comes to your house and mortgage though it’s a HUGE deal.
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Simply stepping back, honestly evaluating your assumptions – such as it “must” have 4 bedrooms – can make literally hundreds of thousands of dollars difference. For all the aspects that really help determine a houses price make sure you have factual reasons – and GOOD reasons – for needing those things.
Ask and challenge yourself to provide factual proof of why you need a big backyard. Why you need 3 or 4 bedrooms. Why you need it to be close to the city. Explore alternatives that make the overall cost cheaper. You may end up proving that you do need them and that’s OK, just make sure you do it though as otherwise this feeds into buying a bigger house which always needs a bigger mortgage.
2. Not Using A Mortgage Broker Service / Only Looking At Big Banks
The next step after deciding which house to buy is finding a bank that will loan you the money. One of the great companies we recommend here at MTM is Uno mainly because they provide a fantastic mortgage broker service. Not using one of these services is a huge mortgage mistakes to avoid!
Not only will mortgage broker services know the current landscape far better than you, they’ll have tools and systems at their disposal to help you considerably. Their systems can search through dozens or thousands of banks and lenders to find the one to best suit you. This not only saves you time but huge amounts of cash by getting you a lower interest rate right from the get go.
The other less known benefit of broker services is that they’ll often show you that there are other banks besides the main big ones out there. They could be credit unions or other more niche lenders that usually offer lower interest rates as they have to compete more fiercely due to their smaller size.
Many, many people out there have a huge blank spot in that they’ll only consider getting a mortgage from the biggest, most major established banks out there. Here in Australia that’s “the big four”.
This costs them their whole life as they continue to pay substantially more in interest on their home loan. It’s the equivalent of buying Nike’s for their name. Great for street cred… crap for your wallet!
3. Getting A Package Deal You Don’t Use
Next up after finding a good bank or credit union to loan you the money is making sure you don’t go for the super expensive “package” deals. This is one of the most common mortgage application mistakes out there as banks are always trying to talk up their new, super amazing supersized deals.
Sometimes these combo deals can actually be worth it. The lower interest rate, the “free” credit card or other perks do obviously save you money however you need to be sure this saving isn’t ruined by their usually high yearly fees.
While every person is different and there are many different packages out there, businesses – especially banks – are usually wanting to make money. As such any “deals” they have should be highly scrutinised and you should run your own numbers to make sure you’re truly benefiting.
Too often couples take out a package deal, pay the yearly fees but then don’t actually end up using any of the features. Even seemingly handy things like Offset Accounts can be had for free with most standard loans.
4. Not Negotiating!
Once you’ve found your bank and specific loan you’re ready to start. A famous quote from someone I unfortunately can’t remember puts it excellently when negotiating is concerned:
“No” is just the first step.
It refers to when, in negotiation the other person says “No” to your request. In our case it should be you requesting a lower interest rate.
If or when they say “no”, be sure to know in your mind that this is just the beginning. The first step in you negotiating a much better rate for yourself. It’s a big change in how most people view “no” which is as the end, the point where they think nothing else can be done to change the situation.
Before going in and asking for a lower interest rate though, Learn To Negotiate and practice a few times. Yes, I’m sure many of you will think it silly to practice but it can save you thousands and not doing it is a huge common mortgage application mistake.
Even those that have had 2 or 3 mortgages over their lives will still just blindly accept that whatever the bank is offering is the only thing available. And sure, you’re not going to get them to go from 5% to 1% but by applying the right kind of pressure and framing things properly even novices can be extremely convincing.
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5. Not Starting With High, Automatic Repayments
Finally we get to one of the biggest mortgage mistakes to avoid. Obviously this is MTM so it goes without saying that you’ll want to follow our main strategy when it comes to your mortgage.
That being said, when you’re just starting out getting a mortgage or potentially moving house it’s understandable that you might not have all the time in the world to put it in place.
However don’t just dismiss the idea or lump it in a “too hard basket”. Make sure that you set yourself up and follow it as it will save you hundreds of thousands of dollars over your life.
If you don’t have the time though as a bare minimum make sure your repayments are set as high as you can and make them automatic. Sure, by investing more time and effort later you’ll likely get them even higher… but at least you’ll be doing a good portion of the work while you get settled in.
So what other colossal mistakes have you or others you know made when getting a mortgage? Did you sign up to a fixed rate mortgage and then have interest rates plummet? Did you get the top tier plan due to a silver tonged salesman? Let us know in the comments so others can never fall into the same trap!
The benefits include: 1) How to pay off your mortgage faster than 99% of people with one hour a month of work 2) How to get rid of your debt and have the freedom to spend money on the things you love, guilt free 3) Clear outline of how to setup your expenses, mortgage and general finance 4) How offset accounts work and how to get the same result without being gouged by the big banks 5) How to cut through the crap and focus on the things that truly matter when taking down a mortgage 6) How to adjust the strategy so it works for you, even if you have kids, even if you only have one income 7) How to do all of these things and maintain a normal social life (and never be cheap).