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Becoming a homeowner is liberating. But homes are expensive going for thousands of dollars. Sometimes millions.

Coming up with the cash on the spot is impossible for most. Borrowing mortgages with repayment terms of many years, for instance 15 or 30 years, is the path taken to homeownership by most people.

Mortgages are complex. It is no wonder that many people bungle up this key decision. It’s in your best interest not to make common mortgage mistakes. Keep reading to see these pitfalls:

1. Ending up with high mortgage payments

Everyone, well the majority, survives on a limited budget. Allocating money wisely is therefore important. Struggling with a mortgage payment means that a huge chunk of the paycheck goes towards home payments leaving little for other needs.

Now, the golden rule is keeping mortgage repayments within 28% of gross monthly income, pre-tax. Renters have the same general rule imposed on them.

For instance, take it that you earn $120,000 annually. Your monthly payments should not exceed?

Let’s work it out:
$120,000 ÷ 12 months = $10,000
$10,000 (monthly) x 0.28 = $2,800

If you can have lower monthly payments, all the better as you will avoid one of the most common mortgage mistakes.

Note that you can determine the house you can afford by first figuring out the amount you can spare each month. Just find a free mortgage calculator to use.

2. Not price hunting

Are you a bargain hunter? Do you consider yourself the type of person that searches for the best deals? Nothing is stopping you from hunting for the most affordable mortgage provider. Why care?

It’s an opportunity to save tens of thousands of dollars. That money can go into renovations, purchasing a new car, saving up for college, etc.

You’d presuppose that most homeowners do some shopping around for their mortgages, like the time they devote to finding the perfect home. According to a report published by the CFPB in Jan 2015, three-quarters of consumers just apply to a single lender or use just one broker.

So what are the underlying reasons that cause people not to shop around for the best terms and conditions? Well, let’s start with the fact that mortgages are complex, and therefore, intimidating.

But if you’re looking for one of the easiest mortgage mistakes to avoid, learn how these loan products work.

3. Making a small down payment

Down payments require home buyers to put down a percentage of the total cost of the house in cash. For instance, if you’re purchasing a home worth $1 million with a down payment of 20%, the bank expects $200,000 in cash.

It is sufficient to see why a downpayment is an obstacle in homeownership. That’s why you’ll encounter lenders promising a 0% downpayment.

Now, you might be tempted to search for mortgage products that require less than 20% down. There are many disadvantages that come with these loan products:

• Higher loan costs because of higher interest rates.
• Borrowers have less skin in the game.
• Requires mortgage insurance, which goes for about $1445 on average per year.

After entering into this situation, you might be stuck with unfavorable terms for years to come.

Try refinancing

Stuck with a high-interest rate on an existing mortgage? Do you reason that you can qualify for a better rate? Refinancing your mortgage with help from one of the many great lenders in Canada is advisable. It simply entails taking out a new loan to clear the old one. You then begin paying off the new loan with better terms.

4. Reverse mortgage – Is it a mistake?



Here is how a reverse mortgage works: instead of paying the lender monthly mortgage payments, it is the financial institution that pays the homeowner every month.

Reverse mortgages are usually tailored to persons aged 62 years and above. They are unlikely to be still making mortgage payments. The reverse mortgage allows them to, in a sense, redeem the equity they have in their home.

There are different ways reverse mortgages come to an end. The homeowner might exhaust their equity, which means that the bank will now own the home.

After the homeowner passes on, there might be two possible outcomes. The beneficiaries of the estate may choose to work out a plan to repay the equity redeemed so they can retain ownership of the estate. Alternatively, they might be paid the remaining equity after the home is sold and all the fees are deducted.

Some reverse mortgage mistakes include:

• Applying for this product when you want to leave the family house to your beneficiaries. They stand to lose the property if they can’t repay the amount redeemed.
• Going for a reverse mortgage when they are other people dependent on the house for shelter.
• Obtaining this product to cater for medical expenses. It might reach a point that you may need to relocate. In such a case, the outstanding amount should be repaid or other consequences follow.
• Taking out a reverse mortgage when you have plans to relocate.
5. Obtaining a mortgage with a not so good credit

Okay, you have a fair credit score or good credit score and you’ve just applied for a mortgage. Well, don’t expect the best interest rates. They are reserved for people who have very good or excellent credit scores.

Ending up with an expensive loan translates to higher monthly payments. It makes paying off the loan painful and difficult.

So, what can you do to steer clear of one of the easiest mortgage mistakes to make.

Well, plan in advance. If you make the decision to purchase a new home, start preparing months or years in advance. Look up all the ways to improve your credit score and income.

The Bottom, Bottom Line

Well, just to emphasize that you can avoid these common mortgage mistakes that lie waiting in your path to homeownership. Other than that be watchful for other pitfalls. For instance, opting for a longer amortization period, maybe 30 years, when you can comfortably pay for your home with a shorter period, e.g. 15 years.