3 outdated mortgage tips
A mortgage will likely be the biggest debt you incur in your life, so you need to make the right decisions about your loan. Unfortunately, you can be unduly influenced by some outdated advice that may not necessarily apply to you.
To make sure this doesn’t happen, check out these three common mortgage tips that may not be true in all situations.
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1. Interest is tax deductible
Chances are, you’ll find out that your mortgage is more affordable than it initially looks because the interest is tax deductible. However, while the interest is Tax deductible on loans up to $ 750,000, you must itemize when you file your taxes in order to claim the mortgage interest deduction.
Detailing makes sense alone if you can save more by deducting for specific expenses than you would save by claiming the standard deduction. For single tax filers, the standard deduction is $ 12,550 in 2021 and for married spouses it is $ 25,100. For most people, their itemized deductions are no more than that, so claiming the standard deduction is the smartest financial decision.
If this is your case, you habit be able to deduct your mortgage interest and cannot expect to save on your home loan because the government subsidizes part of your interest costs.
2. It is better to work with a local bank
Traditionally, people looking for a mortgage have often been advised to work with their local bank. Since they already had a relationship with them, the theory was that the local bank would be more likely to approve them for a loan and offer a competitive rate.
Today, this is not necessarily the case. There are currently a large number of different options for loans, including online mortgage lenders who often offer very competitive terms on home loans. Borrowers should get quotes from multiple lenders and should not limit themselves to local financial institutions in their quest for the most affordable loan.
3. You need 20% deposit
For a long time, it was also widely accepted that you had to put down a 20% down payment on a house. However, the majority of home buyers no longer do this. In 2019, the median down payment for all buyers was only 12%, according to a study by the National Association of Real Estate Agents. For first-time buyers, it was even lower at 16%.
Unfortunately, borrowers who believe they need to make a 20% down payment could end up delaying homeownership for a very long time, perhaps unnecessarily.
Now, it’s definitely ideal to make a 20% down payment if you can. This gives you the widest choice of lenders willing to work with you, so you are more likely to be able to get the most affordable loan possible. You can also avoid having to pay for private mortgage insurance (PMI), which borrowers with a smaller down payment must pay to protect lenders against loss. And you won’t have to worry so much about owing more than the value of your home.
But if you’re otherwise in a good financial position to buy a home, think it’s a good time to buy, and you don’t have a 20% down payment, you shouldn’t leave this advice behind. outdated keeping you from making your dreams of home ownership come true, especially since it is possible to buy a home without a down payment.
At the end of the day, you need to consider the specifics of your situation and make sure you make an informed choice about when to buy, who to get your loan from, and how much your mortgage will cost you.