More and more people are taking out home loans – it’s the way you can afford to buy a property to call “home”. However, you have to be careful, because there are certain things you might do that end up costing you a lot more than you thought. Avoid these 5 mistakes.
Failing to review your home loan
If you are a home loan borrower, then you need to review the loan regularly, once a year as a minimum. This is necessary so you can check the charges and fees that you are covering. Your loan can be evaluated by mortgage brokers, to establish whether or not it remains competitive. In the absence of this regular check, you could find yourself overpaying for your mortgage, and that adds up over several years, so don’t forget about the reviews.
Paying monthly
Most payments are set up to be made monthly, but did you know that you can adjust the frequency to once every two weeks, or even weekly? What this does is amount to one whole additional payment every year. For example, let’s say you have taken out a loan that was supposed to be repaid over a period of several decades (20 or 30 years). Increasing the payment frequency can help you pay it off several years earlier, thus saving money (as much as tens of thousands of dollars) on interest rates.
Paying an increased interest rate
A mistake a lot of people make is that they don’t adjust their interest rate. You see, you start out paying a certain percentage, but that average changes over time. So, you might find yourself paying your old interest rate that is significantly higher than the current average. The difference doesn’t seem high (2%, for example), but it adds up to a pretty significant sum, especially over time. Avoiding this is as simple as calling your lender and letting them know about smaller interest rates at other banks. Alternatively, you can always switch banks.
Taking a fixed-term interest rate
Are you aware of how much it costs to break your fixed-term interest rate? It can cost you thousands of dollars, which is why you have to be extra careful when deciding to set it up. Make sure that you are fully aware and informed of all the details and the circumstances of this decision. A fixed interest rate can have advantages if you are concerned about being able to make your payments, but it can also come back to bite you later, if you want to get rid of it, so choose wisely.
Not taking the time to understand how your loan works
First-time buyers can really get blind-sided by this one, so if you’re one of them, be careful when choosing a home loan. You have to understand exactly what the features of your home loan are, in order to know how it works.