There is no shortage of advice regarding buying a home. Unfortunately some of it is not accurate. We’ve decided to dispel some of the most common mortgage myths out there. Don’t allow these myths to lead you astray during your homebuying process.
30 Year Fixed Mortgage is the Best Option
The 30 year fixed mortgage has traditionally been the most popular mortgage available. However, there is an array of loans available that may better suit the needs of potential homeowners. Adjustable rate mortgages or balloon loans are great for homeowners who only plan on owning a property for a short length of time. They can take advantage of the lower interest rate while owning the home during that introductory period.
Owning a House is More Expensive Than Renting
Many people believe that renting is more expensive than owning a home. The national average for a mortgage payment is lower than a rent payment. If you own the same size property you were renting will likely see savings after buying. You can purchase bigger property and a have a mortgage payment equivalent to what you were paying in rent. Every payment you make, lowers your mortgage balance and increases the amount of equity you have in the property. Addtionally, the investment into your home is tax free. As your home gains value throughout the years there is no obligation on you to pay taxes on the gains you see.
Although there can be more costs associated with owning a home while maintaining a property. Overall, homeownership is the wiser decision financially.
You Need a Large Down Payment to Get a Mortgage
It is no longer necessary to have a hefty down payment in order to be pre-approved for a mortgage, another among the mortgage myths. There are many loan options that offer low down payments of only 3.5% or 5%. There are even some loan programs that offer 0% down payment programs for eligible buyers. You can also decrease the amount of money needed at closing by having closing costs paid by the seller. Ultimately, you can buy a home with a much smaller investment than what was once required.
Private Mortgage Insurance is a Waste of Money
Although homeowners do not need to have a 20% down payment at the time of purchasing a home, most lenders will require private mortgage insurance on an loans exceeding 80% loan to value. This means that each month you will have to pay an insurance premium on top of your mortgage. The amount usually does not exceed a couple hundred dollars each month. Once the loan is below 80% loan to value you may refinance the loan to remove private mortgage insurance. Even after paying for private mortgage insurance, you are still coming ahead financially by owning a home. You will be investing into equity and enjoying the tax benefits associated with owning a home.
You Should Pay Off Your Mortgage Early
Also among other mortgage myths, many people feel that you should eliminate debt and pay off your mortgage as quickly as possible. While there are some risks involved with having outstanding debt, there are also many benefits to having a mortgage loan. Currently, interest rates are at all-time lows. With rates well below 4%, homeowners are not paying an exorbitant amount of interest. If you invest money wisely you can yield a much higher rate of return than 4%. In addition to investment opportunity, there are also tax benefits associated with having a mortgage. Each year you can deduct the money you have paid toward mortgage interest and reduce the amount of taxes you owe. These benefits can make it a better financial situation to keep your mortgage around for a little longer.