In a mortgage, debtors transfer the interest in an immovable property to the creditor for the purpose of securing a loan. However, it is quite normal that they might commit certain mistakes while taking a mortgage. Instead of getting burdened by the fear of such mistakes, one should make themselves aware of the same so that they can avoid them.
1. Overlooking the expenses involved in owning a home
Owning a home comes with various expenses including annual maintenance that increases as per the age of the house and the area it covers. Property taxes are also an important expense involved in homeownership that increases with each year. All these factors will help a debtor understand the true price of the home they own. Besides, if their home is situated in a flood hazard area, the lender might ask for the insurance as well.
2. Borrowing more than one can pay
One of the common mistakes that the debtor commits while taking a mortgage is to borrow a higher amount of money than they can afford to pay. This means that a significant portion of their earning goes for the payment of debt every month. As a result, they can hardly make allowance for other important things in life such as savings for their kids’ education, their retirement or replacing a worn-out vehicle. This situation can further make the debtors regret their decision of buying a home. It is advised that debtors must consider factors such as the place they live in and their earnings along with other factors to decide the amount they can afford for mortgage payments.
3. Not comparing among available options
Another common mistake involved in taking a mortgage is that debtors do not compare the various options available. Comparing various mortgages can save a huge amount of fees and interest during the particular period.
4. Not paying attention to APR
Many lenders offer a lower rate of interest; however, they cover the same with a higher amount of fees. Therefore, it is important for the debtors to compare annual percentage rates from the disclosure forms of the lenders to check for mortgages that involve the least expenses. APR generally includes the fees of the lender and it reveals the actual cost of the mortgage.
5. Not checking the credit reports
Debtors often fail to check their credit reports for mistakes, as a result of which they face difficulties while taking a mortgage. Owing to these mistakes, they might either be charged a higher mortgage rate or their application might get rejected. Therefore, experts suggest that debtors should check their credit score about almost six months to a year in advance before applying for a mortgage. This will provide them with adequate time to make any amendments that can improve their overall score.
With the help of the above-stated mistakes, the mortgagor can carefully avoid them to make the most from their mortgage.