When it comes to securing a home loan, there’s a lot of conventional wisdom floating around. While some advice holds true, many pieces of so-called “common mortgage wisdom” can be misleading or oversimplified. Here’s what you need to know about some of the most widely accepted mortgage tips and how working with an experienced mortgage lender can set the record straight.
Wisdom 1: Always Choose a 30-Year Fixed-Rate Mortgage
A 30-year fixed-rate mortgage is a popular choice because it offers stability with predictable payments. However, it’s not the only option worth considering. Depending on your financial goals and how long you plan to stay in the home, a 15-year fixed or an adjustable-rate mortgage (ARM) might be a better fit. Shorter terms often come with lower interest rates and can save you money over time, while ARMs may be ideal if you’re planning to sell before the rate adjusts.
Wisdom 2: It’s Best to Pay Off Your Mortgage Early
While paying off your mortgage ahead of schedule can reduce interest costs, it’s not always the smartest financial move. If your mortgage rate is relatively low, you might be better off investing extra funds elsewhere, where you could see a higher return. Working with a knowledgeable lender can help you weigh the pros and cons of early mortgage payoff and decide what’s best for your situation.
Wisdom 3: Avoid Adjustable-Rate Mortgages at All Costs
Adjustable-rate mortgages (ARMs) often get a bad reputation due to the uncertainty of future interest rate increases. However, ARMs can be advantageous if used wisely, especially for those who don’t plan to stay in a home long-term. A good lender can help you understand the risks and benefits of ARMs and determine if this type of loan makes sense for your needs.
Wisdom 4: You Should Max Out Your Budget for Your Dream Home
Just because you qualify for a large loan doesn’t mean you should borrow the full amount. It’s tempting to buy the most expensive home you can afford, but overextending yourself financially can lead to stress and difficulty meeting other financial goals. A reliable lender can help you realistically assess how much home you can comfortably afford, factoring in your long-term financial well-being.
Wisdom 5: It’s Not Worth Refinancing Unless You Can Lower Your Rate by 2%
The old rule of thumb was that you should only refinance if you can lower your interest rate by at least 2%, but that’s not always the case. Even a 1% reduction in rate could lead to significant savings depending on the size of your loan and how long you plan to stay in your home. Plus, refinancing can also be beneficial for changing your loan term or eliminating PMI. A trusted lender can analyze your unique situation to see if refinancing makes sense.
Wisdom 6: You Should Never Buy a Home Without a 20% Down Payment
While putting 20% down can help you avoid PMI and lower your monthly payments, it’s not a must. There are plenty of loan options that require a lower down payment. In some cases, it may be better to put down less and keep cash available for emergencies or investments. An experienced lender can guide you through your options and help you decide the right approach.
Conclusion
Conventional mortgage wisdom can provide a useful starting point, but it’s important to understand that every financial situation is unique. Working with a reliable mortgage lender can help you sift through common advice and make informed decisions based on your specific needs and goals. Don’t be swayed by myths or outdated wisdom—get tailored guidance to confidently navigate the mortgage process.
