Now can be a great time to buy a house, especially if you’ve never owned one before. The Government is offering significant tax credits to first-time home buyers and the interest rates are still relatively low. Before you jump into homeownership, though, you will need to find a qualified professional to give you proper financial advice for a mortgage.
Buying a house consists of much more than signing on the dotted line. There is a myriad of loan types available and choosing the right one for your situation is very important. Whatever type of mortgage you get will have long-term financial consequences for you, this is too important a decision to rush into uninformed.
Many homeowners are finding themselves in a tough situation now because they got an adjustable-rate mortgage. What that means is that the interest rate they got for their loan was only fixed for a specific time frame. After that point, the interest rate would be adjusted according to whatever the prevailing rate was. For many homeowners, their mortgage payments were doubled or even tripled when their rates were adjusted. Few homeowners could afford the higher payment. Remember 2008 and 2009?
That is the reason that anyone who is considering an adjustable-rate mortgage should find a professional who can carefully spell out the advantages and the disadvantages. It is imperative that you ask questions and continue to ask until you get answers that you understand. One part of the problem is that a lot of people are afraid of looking ‘dumb’. It’s for this reason that they won’t press their mortgage lender for a clearer answer. They will ask the question; get an answer they don’t really understand but feel too intimidated to have the lender clarify.
You should never allow your fear of looking dumb to stop you from getting all the information you need to make an informed decision. It’s the mortgage lender’s job to understand all the ins and outs of mortgages, it’s not your job. It’s also part of their job to not just understand it all but to be able to explain it in terms anyone can understand. In this case, what you don’t know really can hurt you…a lot.
Another reason some people make poor decisions when it comes to getting a mortgage loan is unrealistic expectations. They will sign up for an adjustable-rate mortgage where the payment is at the top of what they can afford. They are gambling that the rates will go down by the time they have to adjust their rate, or they are gambling that they will get a promotion and be making more money.
This is not a good way to conduct your financial affairs. You should always try to avoid going to the absolute top of your price limit and mortgage payment. Leave yourself a little wiggle room. You never know what the future holds. If you do get that great promotion just apply more to your principle and pay your mortgage off more quickly.
One thing you need to keep in mind if you find yourself in a position to pay down your mortgage is that many accountants will actually talk you out of paying off your mortgage since you will lose a tax deduction. For most people, this advice is bad advice. You need to ask your accountant how much of a tax deduction you actually get every year from your mortgage interest. Then ask them how much you pay in interest every year. Unless you will save more in the tax deduction than you would spend on the interest you will probably be better off paying off your mortgage. Make sure you ask this question of your accountant.
Better yet, skip an adjustable-rate mortgage and look into a fixed-year mortgage and pay the amount of the loan and no more. Several weeks ago, I wrote two excellent posts on the benefits of a 30-year mortgage as you need to be saving any extra funds that you may have in the stock market as those returns will generally exceed the savings you would have otherwise seen paying off the mortgage early. For more information on this approach go to Benefits of a 30-year Mortgage. With rates between 4.75% and 5.4% (Bankrate.com), you can still have the potential to earn more in the equities markets over paying down your mortgage.
Finding good financial advice for mortgages is extremely important. Don’t skimp, and don’t be afraid to ask questions. It’s your money, and your future you have the right to be informed.
If you have questions about your mortgage or are thinking about obtaining one, consider visiting with a Registered Financial Consultant near you or reach out to me if you are in or near the Metro-Nashville area. And as always seek out a qualified fee-only RFC today.
