It was actually 11 years ago now that my husband and I bought our first home. Wait, he wasn’t even my husband when we bought it — that’s how green we were! Looking back, we were lucky in so many ways with our little row house. But we also made some mistakes. Not big ones, but certainly errors that if avoided could have saved us thousands of dollars over the last decade.
Not getting a pre-approved mortgage
I know, how dumb can you get?! In our defence, we only looked for a house for one day. We ambled into an open house, got the card of an agent, and he took us out one Friday afternoon. We found our house that day after seeing just four others. We went back over the weekend, and knew it was the right place. It was an estate sale, they were taking offers on the Tuesday and before we had time to even give our bank a call, we’d bought the thing.
Getting a pre-approval is just common sense. You visit your bank or speak to a mortgage broker and find out how much you qualify for, what the mortgage rate would be and what your monthly payments would look like. You get the approval so you can make a quick offer and get the house of your dreams without worrying about the money until later (which we had to do). It helps you stay on budget when you’re bidding and also lets you start budgeting for mortgage payments while you’re still renting.
Thinking we were lucky to get a mortgage
Yes, it’s a privilege to be loaned a large chunk of money by a financial institution. But banks make most of their huge profits on mortgages. These are very safe loans for them. If you don’t pay, the bank will simply take your house — they know where you live. And you pay hundreds of thousands in interest over the life of your mortgage, money they pocket. So, when I negotiated that very first mortgage, I should have realized that I was not the fortunate one to get this loan, but the bank was lucky to have me. I had a great credit rating and a long history with my bank, and instead of being so darn grateful, I should have negotiated from day one for the best mortgage rate.
Understanding frequency of payments
The day we signed our mortgage, I recall our bank representative suggesting we make bi-weekly payments. We freaked. As freelancers, we were terrified we’d never make our monthly mortgage payments, let alone a chunk every two weeks. She let it go, and we paid the lowest amount possible for the entire first term of our mortgage. If I’d known then what I know now, I would have still gone for that monthly schedule: it really did make sense at the time. But I should have asked about other payment options, such as double up and anniversary payments. It wasn’t until many years later that I realized I could slip an extra hundred or even thousand on the mortgage pretty much whenever I wanted, without penalty. With our sporadic incomes, this has been a great way for us to pay down our principal safely. Anyone who starts out with their first home should keep their commitment basic, but be aware of extra payment options and use them the very minute they’re able.
Mailing back the renewal
When our first mortgage came due three years later, we made another key financial mistake. I filled out the form, mailed the thing back and we rolled into a five year mortgage at the rate offered on that piece of paper. Duh!! A phone call to my bank or to a mortgage broker would probably have lowered that rate. Comparing mortgage rates at other banks and looking at different options such as a variable rate mortgage or a shorter term would have been smart as well. Simply speaking to a mortgage professional would have shown us several more choices. And as soon as our bank found out we were shopping around for the best rate and asking questions, that would likely have pushed our rate down yet again.
Why didn’t I educate myself on mortgage rates and payment terms and the like? Why didn’t I talk with friends and family about how their own mortgages worked? It took me a decade to realize that bankers and brokers don’t really have the best advice for me: it’s friends and my own personal research that have helped me better understand the biggest investment of my life.
Not that it’s been all folly! We sold our first home last year for a big profit — we were lucky because the market went way up. We’ve done lots of renovating and were able to buy our two homes at great prices because they’ve needed work. We bought in a great neighbourhood that has a great school and everything is so close we walk and bike everywhere. That, in the end, makes up for all the blips. A house can be a good investment, for sure, but the real purpose is to make a home you love.