Think about these things in advance, so you don't waste years of your life. Mortgages don't have the best reputation. But this is not because a home loan is an absolute evil. Bank clients often create unbearable conditions for themselves.
1. Choose an uncomfortable payment
Taking a mortgage with a maximum mandatory payment seems logical: a shorter loan term means less overpayment. Of course, you will have to tighten the belt tighter and limit yourself in some way for the coming years, but the savings are worth it, it seems to you.
Read also: How to Save Money with a Low Salary
But life is not all about numbers, and you are not a robot. With a long-term mortgage, anything can happen: you get fired, you have a baby, you have to support an elderly parent, and the costs go up. Finally, don't discount austerity fatigue - it's a serious psychological burden. It will be difficult for you, and you will perceive the mortgage as a disaster. As a result, a significant part of your life will take place against the backdrop of a local apocalypse.
What to do
Choose a payment amount that is easy for you to pay, even if something goes wrong. Simultaneously, you can always pay off your mortgage ahead of schedule, which will help save interest. If the force majeure does not happen, you pay it ahead of time.
2. Give all the money for the down payment
Another very understandable mistake is to collect all the money available and give it as a down payment. So you reduce the loan size, respectively, overpay the bank less, and return the debt faster.
If you plan to move into an apartment after renovation, you probably have set aside money for wallpapering and installing new plumbing. But if you decide to first live for some time in the interiors leftover from the previous owners, you should be ready to spend on the arrangement. The current showerhead and mildew on the wallpaper previously hidden behind the cupboard will require immediate attention.
Also, some trouble may happen that leaves you without income. In this case, it is good to have savings.
What to do
Make extraordinary savings of two monthly mortgage payments. So you can easily survive the period of force majeure. Also, it is better to calculate and leave a certain amount for the arrangement. If the apartment turns out to be without flaws, all your furniture will fit perfectly in the rooms, and you will not need to buy anything, deposit this amount into the early repayment account and reduce the term of the mortgage or payment.
3. Refuse insurance
Life is unpredictable, and in some cases, even a reserve fund for several months of the mortgage will not relieve you of a headache. If a family member dies or is unable to work anymore, the mortgage becomes an overwhelming burden.
What to do
Life and health insurance. If a tragedy occurs, the insurance company will pay off the debt. But for this, it is necessary to approach the issue not formally. Compare offers from different insurers and read the terms and conditions carefully. For example, a contract may contain a list of chronic diseases for which payments cannot be counted on.
Important: when looking for a bank to take out a loan, consider the cost of insurance. Somewhere require, for example, be sure to issue expensive title insurance. As a result, a mortgage with a low-interest rate can become more expensive than a mortgage with a higher interest rate but flexible insurance requirements.
4. Save on the essentials
If you choose a hypermarket instead of a convenience store to buy the same products for less or don't buy tenth jeans in a denim collection, that's smart. Such measures are not like an intolerable sacrifice. They do not affect your existence that much.
When the desire to save money completely changes your way of life, it's easy to turn life into suffering. And if you skimp on things that affect your health, this suffering can easily move from moral to physical. Symptoms like these should alert you:
- You choose products based on price only. Their composition and menu balance does not bother you. Vegetables and fruits disappeared from the diet.
- You are worried about pain and discomfort, but you do not go to the doctor because the visit can turn into a waste - at least you will have to buy pills.
- You have abandoned all your hobbies because it is expensive and does not know what to do in your free time.
Also read: Tips How to Organize Your Monthly Expenses
What to do
Before taking out a mortgage, take a sober look at what awaits you. A large loan is a long-term undertaking that you cannot just give up on. Your task is to integrate it into your life and not subject your existence to a mortgage. Otherwise, it may turn out that these years have passed in a fog and as if in vain. Think about your vacation separately: it is tough not to go anywhere for 10-15 years if you have previously actively traveled.
Soberly assess your spending, opportunities to save money, and re-read the first paragraph about comfortable payment again - this is really important.
5. Do not repay the mortgage ahead of schedule
You take out a loan based on your current financial conditions and your permanent earnings. By default, the overpayment will be large, and when applying for a mortgage, you put up with it. So pay on schedule without considering additional income. Everything that you earn over the original rate goes to recreation and entertainment.
But early repayment of the mortgage is a great chance. If you pay earlier, you will overpay the bank much less. Also, the apartment will become yours completely. And there will be no damage from these additional contributions - you did not know about these receipts when you took out a loan.
What to do
The most obvious way to reduce the debt burden is to use cash gifts and tax deductions for early repayment. In the mortgage business, every thousand counts.
Let's say you borrowed 1 million for 8 years at 10%. The monthly payment will be 15.2 thousand, and the overpayment will be 457 thousand. Your spouse was born in January, and you in May. If you give an additional thousand rubles in mortgage after each birthday, then overpay 7 thousand less and pay off the debt a month earlier. The numbers are not very impressive, but we are talking about only 15 thousand, spread over eight years. If you give more, then the benefits will be more tangible.
Also, do not forget that your salary will grow over the years, and additional earnings (adjusted for inflation - prices for everything will also rise) should also be invested in a mortgage.
Adapted and translated by The Cop Cart Staff
Sources: Life hacker