Personal Finance

7 Worst Mistakes to Make with Your Mortgage

Kristie McCauley
Written by Kristie McCauley

Establishing and carrying a mortgage is one of the biggest financial steps you take in a lifetime. Whether it’s the first time or seventh time you establish a mortgage, uncover some of the biggest mistakes people make, so you can avoid making them with your mortgage.

1. Focusing Solely on the Interest Rate
What’s the interest rate? What’s the interest rate? But, what’s the interest rate? It’s the never-ending question (and one I heard all the time when I was a mortgage and credit specialist for Merrill Lynch).

Sure, the interest rate is how the mortgage company or lender calculates your monthly mortgage payment, but it is not the true cost of obtaining a mortgage. The true cost of obtaining a mortgage requires you to look beyond the interest rate and take a look at the annual percentage rate (aka APR).

The APR takes the mortgage interest rate into consideration, but it also factors in the other costs you have in obtaining the mortgage – closing costs. When you’re comparing the same type of mortgage (like a 30-year fixed rate mortgage) from one lender to another, compare the APRs, which reveals which lender is truly offering you a better deal.
(HINT: It’s the one with the lower APR, even if the interest rate itself is higher.)

2. Choosing the Wrong Type of Loan
Maybe you grew up with a parent or grandparent constantly telling you that when you buy a house, you have to get a 30-year mortgage or a 15-year mortgage (doesn’t really matter which one they said).

One size does not fit all when it comes to a mortgage. What is right for you and your personal financial situation may not be right for your neighbor, friend, cousin, or whomever.

While Grandma and Grandpa lived in their home for 30 years (or maybe longer), we’re not a society that stays put anymore. If you’re not going to live (and die) in the home for the rest of your life, then a 15- or 30-year fixed rate mortgage might not be the best option for you.

It might be the right option for you, but the point is, that you have to assess your own situation and then determine (with the help of a mortgage pro) the best option for you.

About the author

Kristie McCauley

Kristie McCauley

Kristie Lorette McCauley is an award-winning expert on personal finance, mortgages, and credit. She has published articles on major finance and credit blogs, such as Yahoo! Finance, Quizzle, Money Crashers, and BankRate. She is also the author of books, such as How to Use the Equity in Your Home or Business Today to Invest for Tomorrow and How to Open & Operate a Financially Successful Personal Financial Planning Business.

3 Comments

  • Great points, another thing I now look at is the ability to pay any additional amount towards the principal (in the easiest possible manner). Some lenders have a program to break your mortgage payment in half, so you pay half of your mortgage biweekly – this can shave years off of your loan. The one disadvantage is that that normally means it MUST be an automated payment. My lender sold our mortgage to another provider who is testing the biweekly payments out but doesn’t have the program in place yet. Unfortunately, they only allow you to make extra payments online, but nothing is applied to the mortgage until you call in and tell them to apply it to the principal – any unapplied funds.

    If you can swing making at least ONE extra mortgage payment per year it helps to shave off years as well. Don’t wait till the end of the year, just make an extra $100/per month payment if you can swing it (or whatever monthly adds up to one whole payment by the end of the year)!

  • Truly Kristie is a knowledgeable financial entity; her observation that insurance, utilities and the like do not appear on the 1003 is almost brilliant. Although, lower credit purchasers who use alternative credit might have to furnish this info to the underwriter, Kristie is 99.9% correct – these budget items should be considered.

    The only weakness in her article is a failure to cleary clarify the impact of ignoring APR in favor of lower interest rates – on the overall early loan termination; i.e. What cost adjustment/corrections occur on the financial end to a purchaser who finances 30 years and opts out at 5 years.

    Kristie has inspired me to write a few articles about mortgages that I will provide for your program at a later date;this is based on last mortgage loan processor & officer training and past service as a loan underwriter & residential & commercial real estate broker.

    I joined because I deem this program a consumer service

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