With mortgage rates still extremely low, I thought it was important to talk about some common myths people have about mortgages and the lending process. I don’t want any potential buyers to become dissuaded buying a house because of what they think might be true.
1. 30-year fixed rate mortgages are always the best choice. Well, they may be for some. It truly depends on your situation. If, for example, you know you’re going to move (because of work, etc.) within a few years, an adjustable rate will be even lower and a better choice for you. If you don’t plan to move for a long time, the 30-year might be best. And also know that while the mortgage rate adjusts in a certain time frame for an ARM (usually 3, 5, or 7 years) there is a limit to how much the rate can go up (or down) over time and that you can always refinance at any time.
2. You need to pay off your mortgage as soon as possible. I had talked about this several weeks back when I was discussing which long-term debt should be paid down first. It’s very likely in this day and age that your mortgage rate is not the highest interest rate you have. Usually the highest-interest debt should be paid down first. Plus, mortgage interest is tax deductible, which is a benefit that other types of debt (credit card, for instance) doesn’t have. As always, if you have extra money to put toward it, by all means, do so. Just make sure you apply the extra money to the principal only, not the interest.
3. I’ve already chosen a lender and can’t choose a new one in the process of applying. Until your loan is officially closed, that’s not true. If you’re not happy with the lender or the rate or the process, you’re free to switch. I’ve had clients switch lenders 30 days after signing a contract and 15 days before closing. To make your life easier, provide your new lender with as much information as you can to ensure the process continues going smoothly. And it’s best to shop around before signing a contract.
4. You don’t want to refinance because your 30-year loan starts all over. It’s possible that 30 years will begin on the date of your refinance. But you can work with your lender so that payments can be adjusted. Since you’re refinancing for a lower rate, there’s still a good chance that your monthly payments will be lower by doing this, and, therefore, you can pay your mortgage off sooner.
5. I can find a better deal online. I do know some clients who have closed on homes with online lenders that did a great job. However, I also know some where it didn’t work out at all. By finding a loan online, there’s no personal service and no one to guide you through the process or assist you if there’s a problem. If you do go this route, make sure to verify and ask about all specific fees and read the fine print on everything before agreeing to it.
If you have more questions or need the name of a reputable lender, be sure to contact me online.