How to Live Mortgage Free – Prevent These Bigger Mortgage Mistakes

How to Live Mortgage Free

How to Live Mortgage Free – Prevent These Bigger Mortgage Mistakes

Don’t Mistake Interest Rate with APR

Many Home buyers shop for mortgage financing not knowing the interest rate they will be pay.  The offered rate is usually less than the annual percentage rate (APR), due to fees added to the loan.  Most Mortgage lenders charge fees as administrative costs when closing your loan.   To learn how to live mortgage free you must be aware that rate and APR are different things. For most borrowers, the rate they end up paying is much higher than the rate quoted.  Understanding this is important, as it will affect what you pay over the long-term.

coffee cup spilled over documents

 Although there are many principled loan officers, there are just as many bad ones that play the rate game.  They use industry lingo, complex words and incomplete information to get you to say yes to a loan. To compare offers and get the best rate possible, you need to know how to verify the actual rate.  The true rate is the APR which shows the yearly interest cost of the loan.  Knowing this and paying the lowest APR possible, will save you thousands of dollars.

Don’t Attempt to Compare Different Mortgage Products

Most mortgage borrowers shop for their loan to compare rates in the hope of finding the best deal.  Yet, many rate shoppers really do not know the correct way to look for and compare mortgage rates.  There are many mortgage companies that offer a large selection of loan products.  Many loan products offer different features, conditions, and limitations.  Before you set out to rate shop you should understand these important details.

Colored pencils

When rate shopping, borrowers make the mistake of comparing unrelated loan products.  Many enter the process by not understanding the loan product they need and are not prepared to shop.
Most of the time the focus is on the rate and they miss the most important features of different loans.  In fact, unsuspecting consumers fall prey to loan specialists that play the rate game. They operate
to conceal the important details to sell them a mortgage loan they don’t need.

To be successful you have to know how to compare lenders product offers alongside each other. It may seem difficult, but to learn how to live mortgage free you must comparison shop.  By weighing the facts and comparing the features you will achieve the best outcome.  What is the best outcome? Receiving the things you wanted from a lender when you first set out to find mortgage financing.

Avoid Over Paying for Fees

Paying excessive closing fees is routine for most when financing their mortgage loan.  Overpaying is a mistake that is easily avoidable if you understand the terminology.  Here are some key terms loan personnel use that you should be familiar with before you shop for a loan.
  1. Yield spread premium – The amount of premium a loan officer earns over the note rate par price (100).
  2. Discount points – The number of extra points you pay for below the note rate par price. Lenders look for more profit with discount points when they offer rates that are above the par price.
  3. Junk Fees – Lenders look for more profit with junk fees when they add on fees. Think of an auto dealership with add-on’s like pinstriping and undercoating and you get the idea.
  4. Prepayment penalties – Avoid this one at all costs and insist that you will not close on the loan. Lenders should never charge a prepayment penalty on a mortgage loan. Again, walk away immediately if a lender suggests it.

With a little research, savvy mortgage shoppers can check a mortgage company’s fee quote.  To learn how to live mortgage free you should know the costs and fees to get the fairest deal possible.

Don’t Overlook the Tax Deduction Possibilities

Most mortgage professionals never explain the tax benefits and its impact on your mortgage loan.  Most loan personnel including consumers do not understand how the benefit works and the power it has to reduce taxes.  Even more disturbing is that taxes frequently increase with a mortgage refinance.

How to Live Mortgage Free

One of the benefits to mortgage financing and the reason consumers borrow against their home is the tax advantages. If homeowners truly desire to discover how to live mortgage free they should understand the tax deductibility of interest payments.  In fact, the tax benefit reduces their effective interest rate and provides interest savings over the term of the loan.  Understanding this concept clearly and how it plays into mortgage financing strategies is an important step to living debt free.

Avoid the Trap of Extending Loan Term

Most borrowers automatically settle on a thirty-year term when financing a new loan.  As a result, most mortgage loan transactions include a thirty year amortization period.  A much smaller percentage of mortgage loans are fifteen year periods.  Also, the average age of a first time home buyer is in their early thirties.  At such a young age the prospect of retirement is not their main concern.  Yet, when pondering a thirty-year mortgage note it should be.
locking up binding documents

Even more disturbing is that the average age of refinancing borrowers is even higher. Usually in the early to middle forty age range.  Most of these forty-somethings are obligating themselves to very long terms.  In thirty years they will be close to or over their scheduled retirement.  Many middle-aged borrowers focus on rate and payment.  As a result, they commit to loan terms that are not in the best interest of their retirement goals.  The mistake most borrowers make is that they do not borrow with a debt elimination mindset.  When retirement arrives, most of us dream of a
mortgage debt free life. In the hope that we can enjoy a comfortable lifestyle.  To do this you must have a debt reduction mentality and continue to learn how to live mortgage free.
Mortgage Financing is an important role in any retirement strategy.  Intelligent financing can lead to you owning your home far earlier. In fact, decades before your desired retirement age.
By applying these simple concepts, homeowners can shorten the life of their mortgage. And live a comfortable worry-free retirement.

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