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 email@example.com or follow me on Twitter @thesmartandlazy if you have any questions.