5 mistakes that make mortgages unbearable

2024 Author: Malcolm Clapton | [email protected]. Last modified: 2023-12-17 03:44

Think about these things in advance so you don't waste years of your life.

The mortgage has a bad reputation. But this is not due to the fact that a home loan is an absolute evil. Bank clients often create unbearable conditions for themselves.

1. Choose an uncomfortable payment

Taking a mortgage with a maximum mandatory payment seems logical: a shorter loan term means less overpayment. Of course, you will have to tighten the belt tighter and limit yourself in some way for the coming years, but the savings are worth it, it seems to you.

But life is not all about numbers, and you are not a robot. With a long-term mortgage, anything can happen: you get fired, you have a baby, you have to support an elderly parent, and the costs go up. Finally, don't discount austerity fatigue - it's a serious psychological burden. It will be very difficult for you, and you will perceive the mortgage as a disaster. As a result, a significant part of your life will take place against the backdrop of a local apocalypse.

What to do

Choose a payment amount that is easy for you to pay, even if something goes wrong. At the same time, you can always pay off your mortgage ahead of schedule, which will help save interest. If force majeure does not happen, you just pay it ahead of time.

2. Give all the money for the down payment

Another very understandable mistake is to collect all available money and give it as a down payment. So you reduce the size of the loan, respectively, overpay the bank less and repay the debt faster.

If you are planning to move into an apartment after renovation, you probably have set aside money for wallpapering and installing new plumbing. But if you decide to first live for some time in the interiors left over from the previous owners, you should be ready to spend on the arrangement. The current shower head and mildew on the wallpaper previously hidden behind the cupboard will require immediate attention.

In addition, some kind of trouble may happen that leaves you without income. In this case, it is a good idea to have savings.

What to do

Make an emergency savings of two monthly mortgage payments. So you can easily survive the period of force majeure. In addition, it is better to calculate and leave a certain amount for the arrangement. If the apartment turns out to be without flaws, all your furniture will fit perfectly in the rooms and you will not need to buy anything, just deposit this amount into the early repayment account and reduce the term of the mortgage or payment.

3. Refuse insurance

Life is unpredictable, and in some cases, even a reserve fund for several months of the mortgage will not relieve you of a headache. If a family member dies or is unable to work anymore, the mortgage becomes an overwhelming burden.

What to do

To insure life and health. If a tragedy occurs, the insurance company will pay off the debt. But for this it is necessary to approach the issue not formally. Compare offers from different insurers and read the terms and conditions carefully. For example, the contract may contain a list of chronic diseases for which payments cannot be counted on.

Important: when looking for a bank to take out a loan, consider insurance costs. Somewhere require, for example, be sure to issue an expensive title insurance. As a result, a mortgage with a low interest rate can become more expensive than a mortgage with a higher interest rate but flexible insurance requirements.

4. Save on the essentials

If you choose a hypermarket instead of a convenience store in order to buy the same products for less, or do not buy tenth jeans in the denim collection, this is rational. Such measures are not like an intolerable sacrifice, they do not affect your existence that much.

When the desire to save money completely changes your way of life, it's easy to turn life into suffering. And if you skimp on things that affect your health, this suffering can easily move from moral to physical. Symptoms like these should alert you:

• You choose products based on price only. Their composition and menu balance do not bother you. Vegetables and fruits disappeared from the diet.
• You are worried about pain and discomfort, but you do not go to the doctor, because the visit can turn into a waste - at least you will have to buy pills.
• You have abandoned all hobbies because it is expensive and you do not know what to do with your free time.

What to do

Before taking out a mortgage, take a sober look at what awaits you. A large loan is a long-term undertaking that you cannot just give up on. Your task is to integrate it into your life, and not to subordinate your existence to the mortgage. Otherwise, it may turn out that these years have passed in a fog and as if in vain. Think about your vacation separately: it is very difficult not to go anywhere for 10-15 years, if you have previously actively traveled.

Soberly assess your spending, opportunities to save money, and re-read the first paragraph about comfortable payment again - this is really important.

5. Do not repay the mortgage ahead of schedule

You take out a loan based on your current financial conditions and your permanent earnings. By default, the overpayment will be large, and when applying for a mortgage, you put up with it. So just pay on schedule without considering additional income. Everything that you earn in excess of the original rate goes to recreation and entertainment.

But early repayment of the mortgage is a great chance. If you pay earlier, you will overpay the bank much less. In addition, the apartment will become completely yours. And there will be no damage from these additional contributions - you did not know about these receipts when you took out a loan.

What to do

The most obvious ways to reduce debt burden is to use cash gifts and tax deductions for early repayment. In the mortgage business, every thousand counts.

Let's say you borrowed 1 million for 8 years at 10%. The monthly payment will be 15.2 thousand, and the overpayment will be 457 thousand. You were born in May and your spouse in January. If after each birthday you give an additional thousand rubles in mortgage, then overpay 7 thousand less and pay off the debt a month earlier. The numbers are not very impressive, but we are talking only about 15 thousand, spread over eight years. If you give more, then the benefits will be more tangible.

Also, do not forget that over the years your salary will grow and additional earnings (adjusted for inflation - prices for everything will also rise) should also be invested in a mortgage.