Learning from my mistakes can help you avoid getting stuck with the wrong home loan.
- When I mortgaged my first home, I didn’t know much about loans.
- I did not look for different lenders.
- I haven’t paid a large enough deposit either.
When I bought my first home I wasn’t very financially savvy and made some big mistakes when I got my mortgage loan. Unfortunately, these mistakes have made borrowing more expensive than it otherwise would have been.
Luckily I was able to make the necessary payments and ended up selling the house for more than I paid for it so it didn’t become the financial disaster it could have been. Still, the mistakes were unfortunate and hopefully other future borrowers can learn from the mistakes I made so they don’t cost themselves as much money as I did.
Here were three big mistakes I’ve made that others may be able to avoid in the future.
One of the biggest mistakes I made when I got my first mortgage was just going to the bank that my real estate agent recommended. Rather than soliciting multiple offers from different lenders, I simply contacted the lender I was referred to and accepted the mortgage loan I was offered.
By making this choice, I deprived myself of the ability to ensure I was getting the lowest possible price and charging reasonable fees. To this day I have no idea whether or not I overpaid for that loan or could have gotten a better interest rate – but I suspect I paid more interest than I should have given the interest compared to the national rate Average wasn’t very competitive back then and I was a pretty well qualified borrower.
2. Pay a small deposit
I really wanted to buy my first house because I hated renting. As a result, I immediately made a purchase even though I only had a 10% deposit. Because I invested less than 20%, I had to pay for private mortgage insurance. This increased my monthly expenses while protecting my lender and giving me no direct benefit.
I wasted money every month that I paid PMI, and the payments added up to several hundred dollars. I could have waited a few more months, saved a little more to pay a 20% down payment and saved myself this unnecessary expense.
Of course, that’s not to say that buying a house with less than a 20% discount is always a mistake. But in my case, my first home was very affordable relative to my income at the time, and I had very few expenses. It wouldn’t have taken much time to add extra savings, so I wouldn’t have missed out on real estate appreciation or much time building equity if I’d just been a little more patient.
3. Choosing an adjustable rate mortgage
Eventually, I chose an adjustable rate mortgage for my first loan because the interest rate was slightly lower than a fixed rate mortgage and I expected to move or refinance before the interest rate adjusted. While this was happening, it may not have been the case. I regret taking such a big risk and getting a loan with interest rates that could go up, rather than protecting myself by making sure I know what my total costs would be over time.
Luckily I know better now and have been smarter about follow-up mortgages. And hopefully others can learn from my mistakes and avoid similar mistakes when buying their own first home.
A historic opportunity to potentially save thousands on your mortgage
Interest rates are unlikely to remain at multi-decade lows much longer. That’s why it’s crucial to take action today, whether you’re refinancing and cutting your mortgage payment or ready to pull the trigger on a new home purchase.
The Ascent’s in-house mortgage expert recommends this company find a low interest rate – and in fact he’s used them to refect himself (twice!). Click here to learn more and see your plan. While this doesn’t influence our opinions about products, we do receive compensation from partners whose listings appear here. We are always by your side. See The Ascent’s full advertiser disclosure here.