The 3 Top Mistakes when Picking a Home Loan

Lenders are very clever at disguising expensive plans behind attractive packages, which is why you need to be careful when picking a home loan for your needs. Although your first instinct would go towards the lowest monthly payment amount, you also need to look at the total expenses. Some of the more attractive plans are actually much more expensive in the long run. And this rings true for almost all mortgage plans, even the ones that promise no additional costs. In fact, you should hire a mortgage professional to make sure that you know what you are getting into, and that you choose the right option.

 

Mistake #1: Waiting for interest rates to lower
You should never rely on mortgage rates when deciding on a refinancing plan, because while the rates may drop significantly, they may also rise stratospherically. You should look at the current rates, and if they seem reasonable enough, you should jump on it. You won't ever get the lowest rates, because the market is too unpredictable for that. In fact, even after you apply for a refinancing plan, you still have some leeway for changing mortgage brokers when the rates drop significantly. 

Mistake #2: Not researching enough about mortgage plans with local mortgage bankers/brokers
Usually, people use websites like E-Loan, Lending Tree, etc to compare mortgage plans, but the thing is that these are national mortgage brokers, and when it comes to mortgage plans in your specific state, it may actually cost you more. Plus, you may miss any good opportunities while looking for better plans from national brokers, and that's why you should shop around with local mortgage brokers.

Mistake #3: Paying less now, but more later.
Most people make the mistake of not looking at the big picture. Sure, with refinancing you may get lower rates, but if you have already put some years into paying off your loan, you may actually me shelling out significantly more in the long run. This is because when you refinance a loan, you have to pay it off all over again, including the amount you already have paid. This means that you would be stuck in that cycle for more time, and you would be spending more money. For instance, lets say you are currently in a mortgage plan of 240 payments of $1200 over 30 years. You apply for refinancing, with each payment dropping to $1100, and while on the surface it seems you are getting a better deal, when you do the maths, you are actually paying $108,000 more than you would with the old plan. This is because with refinancing an additional 120 payments is introduced, and $1100 in 360 payments over 30 years is $108,000 more than $1200 in 240 payments over 30 years.

 

Before you apply for a plan, make sure to get two things from your mortgage broker: A good faith estimate, and a “Truth in Lending” statement. You should consult your broker regarding how much your monthly payments would be, the total amount you are paying, and the interest rates you are getting the plan at. You must also inquire regarding the time added to your repayment plan after refinancing. Only after factoring in all these factors should you make a decision of refinancing your loan.