In this blog post I listed 10 mistakes that I made as a First home buyer. Now, here are more details about what I’ve done wrong.

**I walked into my bank and get the personal banker to do my mortgage.**

You can get a better deal and service from a mobile mortgage manager for that bank or a mortgage broker. A good mortgage broker will not only get you a deal on interest and cash back, they can also help you to structure a home loan so you pay it off faster. Moreover – if you are getting a quote from the bank, don’t ask just one bank. Make sure you get at least 3 quotes and be prepared to switch banks to get the best deal for you.**I took the advertised rate.**

Bank’s advertised rates are for SUCKERS! You should ALWAYS ask for a lower rate. If you can’t get a better rate, ask another bank. There is 95% of the time you will get a lower rate unless you are a ‘high risk’ lender. Do not settle for the advertised rate. And remember – both fixed and floating rates are negotiable.**I 100% fixed my mortgage.**

100% fixed mortgage gives certainty on your payment so lots of people are taking that. However, you will end up with extra cash sitting in a saving account and earning low interest. It would be better to set up a small revolving credit or offset mortgage for that cash to offset the home loan interest. You will be paying less interest while having the flexibility of cash in your account.**I paid my mortgage based on what the bank said.**

If you have a 600K, 30 years term mortgage at 4.79%, the bank will ask you to pay $3144.37 monthly. Keep in mind that amount is NOT the absolute amount, it’s just the MINIMUM amount you should pay. You can (and should) always ask to increase the payment amount. Even a $50 increase or rounding up to the nearest $100 can save a lot of interest and time (I am talking about years) on your mortgage. For instance, If you up the 600k payment to $3250/month ($106 extra/month, just$3.5/day), we will reduce the loan by 2 years and save $42611 on interest.**I pay monthly.**

You will save more on interest if you pay fortnightly. Using a 600K loan as an example, the monthly payment will be $3144.37. If you pay fortnightly, the payment amount will be $725.12. The annual amount when paid monthly is 3144.37 x 12 = $37732.44, compared to a fortnightly payment of $725.12 x 52 = $37706.24, a $26.20 different. Although the amount is small, a saving is saving.**I accepted the $1000 cash back.**

This is the same principal as point no.2; you should always ask for a better deal. Although it may not be that easy to get more cash back at the moment.**I did not get a friend to do a referral despite heaps of my friends are with that Bank.**

My bank, at that time, offered $500 cash if you got your friends and family to start a mortgage with them. I could’ve got friends to do a referral and split the $500.**I buy insurance from the bank.**

Insurance from the bank is more expensive compared to insurance companies while offering a similar service. In my case, it was about 20% different. It is very easy to get an online quote for home, content and life insurance now.**I did not ask for fee-free credit card**

Again, this is the same principal as no.2, you may not get it but at least you asked.**About 18 months into that fixed term, some news headline saying interest rate is going up. I considered to break the contract and refinance.**

I didn’t in the end. However, I shouldn’t have been affected by a couple of news headlines or what the radio says.

So, those were my rookie mistakes when I first started my mortgage. Hope you guys won’t make the same mistakes that I made. Now, my mortgage set up is optimal for my situation and I will write about it in a coming blog post.

*Email thesmartandlazy@gmail.com or follow me on Twitter @thesmartandlazy if you have any questions.*

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Good points in general. I’m kicking myself for not doing #2, why not ask for a better rate? Paying fortnightly only saves a very marginal amount, but it’s a lot easier to tie in with a a fortnightly pay round.

But I’m not so keen on 3. Yes an offset or revolving mortgage gives a little flexibility but the rates are higher. And you can always overpay on your fixed mortgage anyhow to get a similar result (but you can’t redraw of course – once it’s paid it’s paid). Personally I think it’s better to just just it simple; borrow as little as possible at the lowest interest rate you can get and pay it off as fast as you can manage..

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Regarding point 3, I will use a 600k, 4.80%, 30 years mortgage as an example. I assume the FHB have 20K in saving for emergency fund and there is NO money left each month after all expenses. The maximum FHB can pay on mortgage is 3147.99/month.

So if FHB pay the mortgage as usual and keep the 20k in a serious saver account (2.25%) for 1 year, the 20k will earn interest 302.7 after tax. FHB also paid 28599.87 on interest for the 1st year and 9176.03 went to principle.

If the FHB arrange a mortgage for 580K while keeping the same payment amount (3147.99/month) and have a RC for 20K. For the first year, the 20k in RC will earn nothing in interest. However, on the mortgage side, since he lower the loan amount but keep the payment the same, he’ve reduced the mortgage term to 27.88 years and only paid 27618.47 interest. The rest of the payment 10157.44 went to principle.

So in situation 1, FHB paid -28599.87 on mortgage interest and earn 302.07 on saving interest, net result is -28297.80. In situation 2, FHB paid -27618.47 on mortgage and earn 0 on saving interest. With having a RC, FHB saved 679.33 on interest in year 1 and reduced 2.22 year on his term.

Of course we assume FHB did not dip into his emergency fund.

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Damn that’s an eye-wateringly high mortgage for a first home. Still that’s the reality for Aucklanders I guess. I’m amazed the 20K on RC affects the term so much. Is that a function of the extra monthly payment going straight against principal from year one?

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600k mortgage is very common in Auckland and its scary.

Regarding that 20k RC effect on the term, higher monthly payment only have a small affect.

That 20k RC acted as you borrow 20k less on your mortgage. That is what you said on ” borrow as little as possible ” but done it in a smart way. We borrow 20k less for NOW and only take it out when we actually need it.

You should consider some RC when your contract is up for renewal.

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