1. Bought a house beyond your means
In today's society of keeping up with the Joneses, most of us buy a house much bigger than we really need. We do this to impress others or for our own ego. It is very important to understand how purchasing a less expensive house saves tens of thousands of dollars of mortgage payments and utility bills that can be re-directed toward long term planning such as retirement and college funding.
2. Waited until the last minute to apply
Like everything else in life, if you waited until the last minute to apply for a mortgage, you did not give yourself enough time to research and ensure that you got the best program for your family. When purchasing a home, you should start the process with your mortgage planner, not the realtor. After you have analyzed your goals, dreams and finances you then enlist a realtor with a mortgage plan in hand to help you find your home.
Your realtor will also appreciate this; she will know that you are qualified to be looking at the price point you requested. By doing it the other way around (as most people do), you were rushed into a home-buying decision and acted out of impulse or emotion, and not from sound thinking. On refinance transactions you waited until you could no longer pay your bills or late notices were piling up. If you implement a review (see item 5, below) below you can take control of your financial future.
3. Took out a 30-year fixed rate mortgage
The national average for time we stay in our homes is seven years. The national average for a mortgage is 4.2 years. Yet you still took out a 30-year mortgage. If you shorten the term of your mortgage to an Adjustable Rate Mortgage (ARM) you can create additional cash flow to invest toward long term growth. The key here is to invest the difference of what your 30-year fixed rate mortgage costs, versus what your payments would be with an ARM. This is how you build wealth! You c an find information in many resources on the questions you must ask y ourself before taking out any mortgage. You should also find information on the moving parts to any Adjustable Rate Mortgage.
4. Paying down the principal balance of your loan
Money you pay towards the principal balance is money you will never see again unless you sell or refinance. Furthermore, equity in your home has a zero rate of return. In addition, each payment you make reduces your tax deductions; exposes you to greater risk of liability and market downturns; reduces your chances of qualifying for financial aid for college tuition; provides you with less liquidity and reduces money that could have gone to other investments.
5. Failing to review your mortgage every year
Life happens! Your circumstances can change each year. One spouse may have stopped working or went back to work. You may have gotten injured or possibly laid off and ran up some debt? Your credit scores may have improved opening up better programs that might not have been a vailable to you when you took out your current mortgage. Maybe you want to make improvements to your home? You have to pay for college? A Mortgage Check-Up can also help prevent identity theft through a credit check. You should read more on why this is so important and how you will benefit.
6. Figuring rate was the most important feature
This is one of the most common misconceptions people make when looking for a new mortgage. Rate is not the most important feature, the monthly payment and right program are. Yes, rate determines the payment, but how you structure your mortgage will have a greater impact on your overall financial success, more than the rate will. You could have a great rate but be in the wrong program and that could cost you thousands of dollars that would otherwise be invested towards your future.
7. Sticking to the; I'm-doing-okay-so-why-do-something-non-traditional attitude
Even if you are doing okay, the question is: by who's standards? Don't rationalize where you are. Even if you are doing great by properly structuring your mortgage, you can do even better. If you are not where you want to be then you should look at alternatives. The goal is to have a very rich retirement. Using a mortgage correctly can turbo charge your lifestyle during the retirement years.
8. Being too busy to consider alternatives, or, using the I'll-worry- about-that later refrain
Most Americans spend more time planning their family vacation than their financial future. What you are really saying is that you don't want to learn anything new. Or, you are financially embarrassed about where you are today so the less you talk about it the better you will feel. This is why 90% of Americans today will not be able to retire. This is why the average 45-year-old only has $27,000 set aside in retirement accounts. This is why we as a country have a negative savings rate. This means we are spending more than we make. You should find more related information to help you improve you r situation.
9. Making a large down payment
Perhaps this should have been the number two choice, but most people think a large down payment will save money over the length of the mortgage. But the more you put down the less you have creating wealth in other investments in addition to the pitfalls detailed in item number 4, above.
10. Figuring it's just a mortgage
A mortgage today is more than just a mortgage. Today we see a mortgage as a financial instrument that should be tied to both short and long term financial goals. The type of mortgage you have dramatically affects your net worth and directly impacts your ability to retire! Advanced Mortgage Planning Strategies can help you use your mortgage to create wealth and piece of mind!
About the author: Dave Muti, JD, RMA is the author of Mortgages: What You Need to Know and a senior mortgage planner located in New Jersey.
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