13 Sep 5 common mistakes when applying for a mortgage: What you need to know not to lose money
Mortgage is a test of one’s strength. Before paying it off and becoming the full owner of the apartment, the borrower can make many mistakes. What kind of mistakes? And what to do to avoid them? Let’s find out.
Not comparing the terms of the banks
The borrower went to the payroll bank, which promised the lowest rate. Formed a mortgage, and then saw more favorable offers in other banks.
This situation can be avoided if, before submitting an application to compare the conditions of different lenders – you can do this in the directory Banki.ru. You may have different rates, terms, requirements for borrowers, the maximum loan amount, and the size of the down payment.
For example, here’s what banks are offering now on mortgages on secondary housing. The data is current at the time of publication. Monthly payments are given based on the following parameters: the cost of housing – 5 million rubles, the down payment – 15%, the term – 20 years.
Do not rehearse and do not calculate the budget in advance
Mortgages are a major financial burden on the budget. It must be “rehearsed” before taking a home loan. How to do it:
Calculate the monthly payment of a potential mortgage.
Set aside that amount every month for at least six months, with the remaining money to live on.
The money you save can then be used for a down payment.
It’s also worth evaluating your spending: in the list of expenses note the mandatory ones (food, transportation, medical treatment, rent) and optional ones (entertainment, sports, shopping). You can see exactly what you need money for, and what you can save on.
Does not take into account additional expenses.
When taking out a mortgage, the borrower spends money on more than just the down payment. Banks ask to insure the purchased property, life and health of the borrower – this often determines the rate. In addition, you will have to spend money on an appraisal of the apartment or house, and the money will not be returned if the bank denies the loan.
Not thinking about early repayment options
If the borrower wants to repay the mortgage early, he should choose a way: with a reduction in the term of the loan or with a reduction in the monthly payment.
The first option reduces the interest payments on the loan, but the monthly debt load does not. This minimizes the overpayment on the mortgage. In the second option, on the contrary, monthly payments are reduced.
Let’s review each option on the example of a 4 million ruble mortgage with an annual interest rate of 10.2% for 20 years. The monthly payment in such a case would be 39.1 thousand rubles. The overpayment is 5.3 million rubles. Suppose the borrower has 500 thousand rubles for early repayment.
If he chose to shorten the credit term, his monthly payment will not decrease, but instead of 20 years he will need to pay 14.5. The overpayment is Br3.3 million (saving almost Br2 million).
If one chooses to reduce the monthly payment, it will be reduced to Br34.1 thousand, while the overpayment will be Br4.7 million (savings – Br600 thousand).
Disposing of the apartment without the consent of the bank
The apartment purchased with a mortgage is pledged to the bank until the credit is paid off. It is allowed to dispose of such an object, but under certain restrictions, which are specified in the mortgage agreement. Some borrowers ignore this rule and, for example, make remodeling or renting property. What else can not do with a mortgage apartment, we wrote here.
What else a mortgagee should think about
What to find first – the mortgage or the apartment?
The buyer decides, relying primarily on its budget. Therefore, first you should find out how much credit the bank will approve and what the monthly payment will be.
An option that first requires a mortgage approval is suitable for secondary market purchases. You already have a down payment and the bank’s decision – with this you can go to the seller and book the object you like.