It’s tough to separate fact from fiction when it comes to home loans. Believing the myths about mortgages can lead to thousands of lost dollars over the life of a loan. Here are five of the most common – and dangerous – myths about mortgages.
The Only Way to get that Down Payment is to Save
For potential buyers that have the time, saving up for the down payment is the best option. However, it’s just not possible for everyone. According to Bankrate.com, there are many government and private funded down payment assistance programs for first-time home buyers with low to moderate income. Many buyers also have the option to borrow against an employer retirement plan, or borrow from family.
The Down Payment is the Only Upfront Cost
This myth has been responsible for the collapse of many mortgage deals. Buyers will need to have money available to pay for a variety of things, including inspection costs, appraisal fees, repairs, furnishings and moving expenses. When it comes to the mortgage costs, buyers will also need to have at least two to five percent of the purchase price available for closing costs.
The Lender with the Lowest Interest is the Best Choice
Everyone wants to save as much money as possible, but the bank that offers rock-bottom interest rates may not be the best way to go. Check the lender’s reliability record – some banks have a long history of predatory lending practices. What about customer service? Believe it or not, some banks still don’t offer online or bill pay services. It might be worth paying a few extra dollars each month in higher interest for convenience and peace of mind.
Always go with 30-Year Fixed Rate Mortgages
This seems to be common wisdom among finance experts, but the truth is that 30-year fixed rate mortgages are usually only the best option for buyers that plan to keep the home for many years without refinancing. However, those who plan to resell or refinance in seven years or less can seriously benefit from an adjustable rate mortgage. Many of these deals offer substantially lower introductory interest rates than traditional 30-year fixed mortgages.
Private Mortgage Insurance is Forever
According to Bankrate.com, borrowers that put down less than 20 percent for their down payment are subject to private mortgage insurance. That doesn’t mean that they will be stuck paying for PMI throughout the entire term of the loan. Once 20 percent of the home’s value has been paid, borrowers can ask to have PMI removed.