How your bank could cheat on your mortgage

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Don’t assume your bank has your best interests at heart when they approve you for a mortgage.


Key points

  • Many people borrow as much as their bank allows.
  • Trusting your bank too much could be a big financial mistake.
  • Borrowers should not assume that their bank fully understands their financial goals.

When applying for a mortgage with your bank or other loan provider, it is important that you prepare for the transaction. Unfortunately, many people make a simple mistake during the mortgage application process by trusting their bank to make a key choice for them. It could end up being a financial disaster.

Here’s how your lender could end up cheating on you and leaving you full of regrets after borrowing to buy a home.

Don’t rely on your bank to make this mortgage decision for you

The big mistake many homebuyers make when it comes to their mortgages is relying on the lender to tell them how much they can afford to borrow.

You see, mortgage lenders look at some key factors when deciding how much loan to offer you. They take into account your income, the current amount of your debt and your credit score. Based on this, they will decide on the loan amount to be approved.

Generally, lenders want to give you as much money as they are confident you can afford to repay. However, the information they use to make this assessment is limited.

Lenders don’t know other financial goals you may have, such as saving enough for early retirement or being able to keep your costs low enough to stay home with your future children. They only know how much you can afford based on your current income, and they are aware that you will likely make huge sacrifices to avoid foreclosure. Frankly, they don’t really care if they lend you enough that you can’t accomplish other things you want – as long as you’re still making your payments, they’ll make their profit.

How to decide how much to borrow?

Borrowing as much as your lender allows could make you feel like you’re housing poor and trapped in a situation where other life goals are out of reach because you’ve committed to paying so much for a house.

The best and only way to avoid this undesirable result is to ensure that your own decision on how much of your income to spend on a home – and stick to your pre-set limit, no matter what the lender is willing to allow.

You need to carefully consider your current and future goals, your career plans, and how much of a mortgage payment can fit your budget. Then work backwards from there to see how much you can borrow while comfortably keeping your payments within your limits. Once you know how much you’re willing to spend on monthly housing costs, you can decide on the upper limit of how much you want to borrow to keep your payments within your predefined threshold.

By taking this approach, you can decide which mortgage is affordable with a more holistic view of your finances, rather than with the goal of maximizing the bank’s profits. You’re much more likely to end up with a loan that’s right for you than one you’ll regret.

A Historic Opportunity to Save Potentially Thousands of Dollars on Your Mortgage

Chances are interest rates won’t stay at multi-decade lows much longer. That’s why it’s crucial to act today, whether you want to refinance and lower your mortgage payments or are ready to pull the trigger on buying a new home.

Ascent’s in-house mortgage expert recommends this company find a low rate – and in fact, he’s used them himself to refi (twice!). Click here to learn more and see your rate. While this does not influence our product opinions, we do receive compensation from partners whose offers appear here. We are by your side, always. See The Ascent’s full announcer disclosure here.

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