4 Mortgage Mistakes You Absolutely Can’t Afford With Rates so High

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Don’t fall victim to a mortgage mishap. 

While mortgage rates dropped to record lows during the pandemic, things have changed in recent months. Rates have crept up steadily and mortgage loan rates are now higher than they’ve been for many years.

With today’s mortgage rates coming in so high, financing your home will be more expensive than it would have been just a year ago. During this time of elevated rates, there are a few mortgage mistakes you absolutely cannot afford to make.

1. Choosing the wrong kind of mortgage

With interest rates rising, the stakes are higher when you choose a mortgage type.

For example, if you’re tempted by a 15-year mortgage due to the fact the rates are lower, you should be aware the shorter pay-off time means you’ll pay a lot more each month. That comes at a big opportunity cost and makes your budget less flexible.

Likewise, if an adjustable-rate mortgage seems attractive, you need to remember there’s a risk of your rate adjusting upward and your loan becoming even more costly. So you should think twice about whether these risks are worth the slightly lower starting rate an ARM can offer.

2. Stretching to buy more house than you should

If you fall in love with a house that’s a little bit above your budget, it might not be such a huge deal to just take out a larger mortgage loan when interest rates are below 3%. But, with rates so high now, it’s especially important you don’t try to buy at the top of your budget. Even a little bit more money borrowed will mean paying a lot more in interest charges at today’s rates.

3. Not practicing your payments before committing

If your mortgage payment is going to be higher than your rent — which is a huge possibility with today’s rates — then you need to practice making these bigger payments before you commit to taking them on for 30 years.

You can do this by putting the difference into your savings. So if your rent is $1,000 monthly and your mortgage would be $1,500, pay the extra $500 into a high-yield savings account you use, to help cover closing or moving expenses.

By testing out living with a higher payment, you can make sure you’re actually comfortable paying your mortgage loan before you’ve promised to pay it for years to come.

4. Not shopping around for a home loan

Finally, if you don’t shop around and compare loan offers, you’re making a huge mistake. When rates are already pretty high as they are now, you don’t want to pay more than necessary just because you didn’t take the time to compare what multiple different lenders would offer you.

The good news is that you can avoid all four of these mistakes. By doing so, you’ll make sure to get the best home loan possible, even during a time when borrowing is a bit more expensive than it was over the past several years. This will help keep your costs as reasonable as they can be so you don’t regret buying your home.

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