If the title of this blog seems intimidating to you, well, then don’t panic. Anyone can make a mistake when it comes to financing your mortgage. That’s why we created this list of 5 Financial Mistakes Homeowners Make With Their Mortgage so you no longer have to feel ashamed about making financial mistakes.

Not combining high-interest debt into a low-interest mortgage

This can include credit or car loans. Often homeowners don’t want to use the equity from their home or want to pay off the debt. Normally debt occurs because of inefficient budgeting or understanding what your income is versus spending. There are many homeowners where the mortgage payment is the main factor in their monthly budget. Also, making minimum payments can take you YEARS to pay off.

Paying “Fees” to get a lower rate.

Nothing comes for free. In all honesty, you go to the bank and their goal is to make money! Chasing rates can cost you more money in the long run.

If you are self-employed and offer a $450,000.00 2-year term mortgage with two options and both amortized over 25 years, then here are your options:

Option 1

A rate of 4.49% and a $4,500.00 fee added to the mortgage

$452,500.00 – payments $2,513.01 per month and total payments of $60,256.32 over the 2 years and mortgage balance of $433,754.57Option 2 a rate of 4.99% and no fee

Option 2

$450,000.00 – payments $2,614.66 per month and total payments of $62,751.84 over the 2 years and mortgage balance of $430,805.31

By taking the lower rate with the fee means $2,495.49 LESS is paid after 2 years but your outstanding balance is $2,949.26 more so there is relatively no savings as the lender bases each deal on risk and they manipulate the fee, no fee option to charge you the same amount for the risk they are taking.

Not taking into Account the Long-term Goal of Financial Planning

Taking 2-5 year goals into consideration is good for a variety of reasons. Some include better rates, lower payments, capitalizing on the equity in your home to pay off any type of debt.

Fact: The average homeowner refinances every 3 years of a 5-year term and pays a penalty.

Taking a 5-year mortgage rate when other terms have better rates

Many times, the 2-4-year rates can offer significant savings over opting for a 5-year rate. The longer you take the term, the higher the cost to you. Worrying about how rates will be in 3-5 years from now should be taken into consideration. However, this should not always be the guiding factor.

Here is an example of a $450,000 mortgage and what the difference in what you will owe on a 3-year term.

2.60% – payments are $1,018.61 every two weeks = $410,045.15 owing in 3 years

2.90% – payments are $1,052.66 every two weeks = $411,483.26 owing in 3 years.

Your payment of $34.05 MORE every two weeks ($2,860.20 total) leaves you with owing $1,481.11 MORE in 3 years.

Know your mortgage. All mortgages come with pre-payment penalties

This is when you must break your mortgage due to an emergency or you need to consolidate debt. Otherwise, you could be hit with a very high pre-payment penalty. We will guide you to a mortgage that does not have those sticker shock penalties that your traditional bank guide you to. The old saying is that if you fail to plan.

Get a plan today! If you have any questions, please contact a Sunlite Mortgage agent at 1.877.385.6267 or visit www.sunlitemortgage.ca.

Otherwise, check out our blog post, Ways to Improve Your Financial Health, if you would like to check out some ways to improve your financial health.

 

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