When structured properly, a home mortgage can be a tool to help you build net worth. However, when not properly managed, a mortgage can cause excess burden and be a financial and emotional drain. In the current environment of distressed home values and inevitable interest rate increases, now is the time to ensure your mortgage is properly structured and in line with your long-term goals.
Over the years I have witnessed many homeowners make significant mistakes in how they obtain a mortgage, as well as the way their loan is structured. Below is a list of the top 5 mistakes I continually see homeowners make:
1. Paying closing costs to Refinance their home loan each time interest rates drop. Many homeowners haveRefinanced their mortgage three or more times since mortgage rates began their historic drop in November of 2008. For those who paid several thousand dollars each time, their balance now is significantly higher than it was before the initial refinance. If a no-cost loan is available, I strongly suggest this option. That way, you are able to take advantage of a declining interest rate environment without increasing your mortgage balance. Feel free to call my office for a free analysis and explanation.
2. Borrowing more than they can afford or reducing the term of the loan resulting in a mortgage payment that is not sustainable within their budget. Many homeowners have unmanageable mortgage payments. The inevitable result of an over-extended budget is an eventual inability to keep up with the required obligation. Emotions play a large role in how much home to buy, and when to have the mortgage paid off. Making wise and well thought-out mortgagedecisions is crucial for long-term mental and financial health.
3. Using their home as a piggy bank. Home equity should be used as a tool to increase net worth, not to purchase luxury items or repeatedly consolidate consumer debts. Strategic debt consolidation can make sense; however, repeatedly using the home to bridge a shortfall in the budget is not a healthy use of home equity.
4. Not seeking advice from a Professional mortgage Advisor. Many banks and internet mortgage companies hire order takers to walk you through the mortgage process. A Professional mortgage Advisor does not cost any more than an order taker and will provide insight and mortgage management that is not offered by transactional institutions. Remember, a mortgage is a tool that will either help increase your net worth, or it will deplete it. Ensure it is properly structured and managed.
5. Shopping for the lowest interest rate. Many people do not realize that mortgage rates are continually changing, minute by minute. In the time it takes to shop interest rates, the rates provided by prior lenders may no longer be available. If you work with a reputable mortgage Advisor that you trust and who has a system for monitoring the markets to know when to lock in your rate, chances are you will receive the great rate you are looking for.
By avoiding these common mistakes you can help ensure you are making wise decisions regarding your mortgagethat will be most beneficial to you in the long term. Also, remember to share your goals and long term objectives with the mortgage Advisor you work with so that he/she can assist you in achieving them. For a free mortgage review, call my office at 801-501-7950 or e-mail me at firstname.lastname@example.org.