15 Mortgage Secrets That The Bank Will Never Tell You About

Accepting the mortgage terms and conditions of the mortgage company in order to take out a mortgage must be done with great precaution to avoid entering into some financial trap which your lender may not possibly make known to you.

Before deciding on a mortgage, seriously consider this step. To prevent home lending from leading your family to bankruptcy and spending millions of dollars, learn a few subtleties that the bank will never tell you about.

1. Do not accept mortgage terms if you have no savings

Mortgages will hit your budget hard. For some families, this monthly expense accounts for the lion’s share of total income, so never settle for a mortgage unless you have a safety cushion. Savings should be at least one annual family budget, because you do not know what tomorrow may bring.

According to the statistics of insurance companies, every 10-15 years an unpleasant situation occurs in any family (loss of job or assets, health problems, theft, etc.), so it is imperative to have savings. Then you and your mortgage will not be afraid of any incidents.

2. Taboo foreign exchange mortgages

Never take out a mortgage in foreign currency. It doesn’t matter how stable and highly paid your job is. Always keep in your head the thought that tomorrow everything can change: both your professional status and the ruble exchange rate. In 2008 and 2015, many Russian families went bankrupt and lost their homes when they could not pay their foreign currency mortgages due to the rapid fall in the exchange rate.

It is more profitable to take a mortgage in domestic currency, and keep the savings for its payment in foreign currency. Then any devaluation that periodically occurs with the ruble will not affect your payments in any way.

3. The shorter the term of the mortgage, the less the overpayment

Therefore, we strongly recommend that you do not undertake mortgage obligations for a period of more than 10 years. The bank, of course, will attract you for longer periods – 20, 25 and even 30 years, offering a lower interest rate. But what matters here is not the size of the monthly payment, but how much you end up overpaying for the apartment.

If you take out 4.5 million rubles on a mortgage for 20 years at 12% per annum to buy an apartment for 5 million, then under such conditions you will pay the bank 7.4 million rubles, which is 148% of the original cost of the apartment.

4. Do not take a long-term mortgage to pay off early

As the statistics of banking institutions confirm, only 10% of borrowers pay off mortgages ahead of schedule. The remaining 90% always have other necessary expenses: repairs, vacations, buying a new car. Thus, the latter greatly overpay for housing, although they could have spent this money on other needs.

5. Say no to floating interest rates

To protect itself from bankruptcy, the bank will certainly raise the mortgage rate. For example, during a crisis, it is in your best interest to choose a fixed interest rate, otherwise your family’s financial losses may amount to thousands of rubles.

6. Choose a mortgage with the possibility of refinancing

This option will allow you to save a significant amount by borrowing money from another bank at a lower interest rate. So, with a ten-year loan of 5 million rubles, refinancing by only 1% will save you up to 35 thousand rubles a year.

7. Compare mortgage terms and conditions of different banks

Do not be lazy and compare the terms of mortgage loans in three to five reliable banks. Even if you have been cooperating with a certain banking institution for a long time, still check the offers of its competitors. Sometimes a sensible and correct choice of a bank and credit conditions can save you thousands of rubles, but laziness can cost millions.

8. Do not take a mortgage on the eve of the economic crisis

In a crisis, any scenario is possible: real estate depreciates, people lose their jobs. If, on the eve of the crisis moment, you take on a mortgage an apartment worth, for example, 4 million rubles, then over time it can lose about 30% in price and will cost 2.8 million rubles, and you will have to pay the bank based on the initial loan amount.

Remember that when “hard times” come, you should always adhere to two rules: increase your own savings and quickly get rid of debt.

9. Consider the cost of repairs and transactions

So, repairing an apartment with an area of ​​60 square meters will cost on average 300-500 thousand rubles. The costs of the transaction when buying an apartment for 5 million rubles may result in about the same amount. Therefore, when calculating the mortgage, these figures should definitely be added to the price of the apartment.

10. Payments on all loans, including mortgages, must not exceed 25%

Even if bank employees will convince you that 40% of income is considered a normal amount, remember, this is not true. There are different situations in life, and for some reason, your net income can drop dramatically. Therefore, the optimal amount of all tax payments is 25%. The average family can live comfortably if, with a total monthly income of 100 thousand rubles, their loan payments do not exceed 25 thousand rubles.

11. Before accepting the mortgage terms make sure you have a stable work

When applying for a long-term mortgage loan, you must be firmly confident in the stability of your earnings, otherwise you risk falling into a deep debt hole. This is especially true for those families in which only one of the spouses works. Invest money and time in your education, try to develop and improve your qualifications.

12. Before accepting mortgage terms insure your life, health, or credit

It doesn’t matter which insurance you choose. The main thing is that according to its terms, in the event of disability or death of the borrower, the balance on his loan in full falls on the insurance company. Thus, you will ensure the safety of your family, which in the event of such a tragedy may be left without a breadwinner and without an apartment.

13. Do not accept mortgage terms of housing in depressed areas and old houses

Such housing will only get cheaper over time. And if you suddenly want to move to better conditions, then it can be extremely difficult to do this, since the amount from the sale will not be enough to repay the loan to the bank.

14. Mortgage is an option for a strong and reliable family

Never enter into a mortgage agreement if you are in doubt about the relationship with your spouse or are not sure about the future. You will have to pay the deposit for years, and unfortunately, not all relationships can withstand such a lengthy test. Even after a divorce, the obligations to repay the loan will not go anywhere, because often at the time of signing the agreement, the bank enters both spouses into it as co-borrowers. Sometimes people have to return the deposit for a long time for the housing where they will never live again.

15. Home mortgage is not the best way to impress

Therefore, you should not hang perennial bondage on your family for the sake of striving to appear richer and more successful than it really is. Count on your real income and opportunities, and then the mortgage will not become an unbearable burden for you.

So that buying a home on a mortgage will bring joy, and not become a long-term financial prison for your family, think over the pros and cons in advance. Calculate all possible scenarios for the development of events, consult with experts and knowledgeable people, and only then sign the coveted agreement.

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