I was sorting my paperwork and saw my old mortgage paper. I was such a noob back then and made a lot of mistakes when I set up that mortgage.
Hunting for our First home
When I and my wife start hunting for house couple years back, we’ve done the first timer mistake by walking into my friendly local bank which I’ve been banking with for 10+ years, ask about home mortgage and got introduced to a personal banker. Had a 30 mins meeting where the banker took our account statement and worked out our income, expense, and deposit. We walk away with a 600K loan pre-approval.
So, we went on to house-hunting and luckily got a house at auction (passed-in then negotiate). We took the purchase agreement to went to the bank again. This time stayed there for an hour. Got a 500K fixed 2-year at the advertised rate home loan, pay monthly plus a life insurance for both of us, house and content insurance. I was so proud of myself because I also got a $1000 cash back and used that to pay the lawyer. The mortgage payment was about $2400/month plus $180 for the insurance. I remember when I walk out of that bank I felt a sense of accomplishment. I knocked down home ownership, mortgage, life, content, and house insurance on the same day.
The list of stupid things that we’ve done.
Now I look back at the mortgage statement, I was such a NOOB!!!! I’ve made so many first timer mistakes!!!
- I walked into a bank and get the personal banker to do my mortgage.
- I took the advertised rate.
- I 100% fixed my mortgage.
- I pay my mortgage based on what the bank said.
- I pay monthly.
- I accepted the $1000 cash back.
- I did not get a friend to do a referral despite heaps of my friends are with that Bank.
- I buy insurance from the bank.
- I did not ask for fee-free credit card
- About 18 months into that fixed term, some news headline saying interest rate is going up. I considered very hard to break the contract and refinance.
The ONLY thing we did right was the downpayment. At that time, you can get a home mortgage with just 5% deposit and lots of people did that. We decided to put over 20% as deposit since we saved up some money already.
At that time we didn’t know much about mortgage….actually, we don’t know much about money, personal finance, saving and spending at all. We were stuck with this deal for 2 years and within that time, we had a money crisis that forced me to educate myself about money. I read books from the library, research online, builds home loan model in excel and ran a bunch of analysis. Now I have a nice setup on a home mortgage with every dollar working to reduced the interest expense.
I am interested to know any of you made those mistake when you first took on a mortgage?
Also if you don’t know what I’ve done wrong or you actually doing the same thing, check out this blog post and I will explain what I’ve done wrong.
Email firstname.lastname@example.org or follow me on Twitter @thesmartandlazy if you have any questions.
I enjoyed reading the blog. Thank you.
Thanks for the comment. stay tuned for the following up post.
I’m very much looking forward to the next blog post.
We did everything except numbers 5,6, 8 and 10. I’m not really sure what’s wrong with 3 and 4.
Five years on and I’m still with the same bank, but I kept my payments at the same level when the rate when down and now have only 9 years to go.
for no.3 After we’ve brought the house, we have a bit of cash left over as our emergency fund. We should’ve arranged a small revolving credit loan and put our emergency fund in there to offset some interest.
No.4, when you apply for the mortgage, the bank will show you the monthly or fortnightly payment amount. That amount is not a fixed amount, it’s just the MINIMUM amount that you should pay. You can (and should) always ask to up the payment amount. Even a $50 or round up to the near $100, it can save a lot of interest and time on your mortgage.
Absolutely. Overpaying by $50 a fortnight is knocking a whole year off the term of my loan and ends up saving me just over $3,000 in payments overall.
Having a play with a mortgage calculator like this one (http://www.interest.co.nz/calculators/mortgage-calculator) really helped me understand just how powerful that is. Every extra dollar overpaid saves you the term of the loan remaining x the interest rate in future costs.
I’m not totally sold on the revolving credit idea though – won’t their be more set -up fees? And the off-set rate my bank offered at the time was a whole per cent higher than the fixed-term rate. Even now it looks like it’s 0.8% higher.
Yes, RC and offset is a powerful tool in mortgage payment in my opinion.
They usually cause about $10 a month but I’ve managed to get those fee write off by asking. You do pay a higher interest rate but that can be negotiated with 0.2 to 0.7% discount. The key thing is to work out how big of a RC you need. I will write a blog on that in the future.
new blog post is up https://thesmartandlazy.com/2017/03/27/10-mistakes-ive-made-as-first-home-buyer/
These articles are great.
When will the follow up article go up? Very curious to find out why some of these 10 things were noob (some are obvious, but some aren’t, at least to me).
New blog post is up https://thesmartandlazy.com/2017/03/27/10-mistakes-ive-made-as-first-home-buyer/
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