Mortgage Myths: 4 Things to Know

family mortgage

Owning a home is the American Dream. While buying one can be a good financial decision, the reality isn’t always so rosy. Between damage from disasters, market downturns and job loss, homeowners can find themselves and their credit being dragged down by mortgage payments and the other expenses of owning their homes.

Although homeownership can be the right financial choice for some, it is not a necessity. There are other ways to generate wealth and build a strong credit file. So, before you rush to purchase a home, consider whether it is the right choice for you. The following mortgage and credit repair myths can help you make better decisions for your future.

1. Myth: “Approved” Means it’s a Smart Choice

A mortgage approval should never qualify as the final decision of homeownership. Sure, you have the option of owning a home, but does that mean you should? Not always, according to David Ning, founder of, a popular personal finance blog. The lender’s approval decision doesn’t always mean you can afford the mortgage.

“Mortgage lenders change their lending standards all the time, but without knowing what the future holds, they generally approve buyers solely based on a snapshot of their current income and assets,” Ning says. “Your job may be on shaky ground, but the lender will never be able to tell from your mortgage application.”

“Just because the mortgage company approved you for a loan doesn’t mean you can actually afford (or want) to make the payments long-term,” he adds. “Getting approved is only the first step. You still have to assess your own situation and make sure you are comfortable with the long-term commitment that home ownership requires before you take the plunge.”

While mortgage lenders are generally good at calculating risk, only you know your full financial situation. Don’t assume that their calculations are comprehensive or take your best interests into account. Whenever you borrow, do your own math and make sure it is the right choice for you.

2. Myth: You Need to Borrow Before Interest Rates Rise

mortgage rates

Mortgage interest rates hit an all-time low in 2012 and have largely remained low since then. This makes some potential homebuyers think that they need to buy now before rates go up again. While timing your mortgage can help you to get a good deal, it is usually less of a factor than developing a strong credit profile.

“These days, it’s hard to get approved for a mortgage if you have a low credit score,” Ning explains. “But even if you were able to obtain a loan, the interest rate would probably be very high. That’s not to say buying a home will never make sense, but know that if you can increase your credit score, you will likely be able to significantly reduce your monthly payment and ultimately the cost you are paying for your dream home.”

Even if interest rates are low, you may be hurting yourself by borrowing now if your credit isn’t strong. The best rates are only for well-qualified borrowers. Instead of taking a mortgage now, consider making credit repair a top priority to ensure you receive better rates in the future.

3. Myth: If You Can Afford the Mortgage, You Can Afford the Home

While buying a home is the first step of ownership, there are numerous other costs that can arise. Unlike when you rent, when you own your home, you are responsible for all repairs and other costs that may come up.

“Home ownership can be wonderful, but it is also a big financial commitment,” Ning said. “While you aren’t building equity with your rent payments, you also won’t be financially liable for the home if a natural disaster were to strike in the area that you live in. There are always pros and cons, but just make sure you can comfortably afford being a homeowner before you decide to purchase that lovely house you’d like to call home.”

In short, ownership is more than just making your mortgage payments on time. The best strategy is to have a safety net ready to handle repairs, updates and even natural disasters. Insurance can protect you from the most significant costs of property damage. However, such situations can still be a major financial burden, especially while you wait to be reimbursed.

Don’t put your finances and credit at risk when you buy a home. Plan ahead and have a strategy to handle unexpected costs. Considering all these components of ownership will help ensure smooth sailing.

4. Myth: Refinancing Will Always Save You Money

refinance mortgage

Refinancing can be a useful tool for borrowers who want to reduce their mortgage costs. However, it isn’t always the right option, especially if your credit is less than ideal. According to Keith Gumbinger in U.S. News, there are many reasons why you may not want to refinance.

“While refinancing at today’s low rates can translate into big monthly savings on your mortgage bill, those savings don’t come without significant upfront costs,” he wrote. “While it’s possible to save money by refinancing to a slightly lower interest rate, it’s a painfully slow process.”

So, if you aren’t in a position to significantly improve your interest rate, you may not save much money or even lose some. Refinancing can come with other difficulties as well. For example, you may need to extend your term.

“If you’ve already refinanced and shortened the term of your loan, you could be forced to get a longer-term loan if you refinance,” Gumbinger explained. “Typically, the shortest fixed-rate mortgage term is 10 years.”

In other words, refinancing your mortgage is usually only advisable if you still have at least 10 years left on your loan and expect to receive a significantly lower rate. Otherwise, you will likely not recoup the upfront costs of refinancing.

With these mortgage and credit repair myths exposed, you may want to reexamine your plan for buying a home. Consider prioritizing repairing your credit before getting a new mortgage. This may help you to improve your options and maximize the financial benefits of homeownership.

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Article Updated June 13, 2019