Securing a mortgage is one of the most important financial decisions you'll make as a homebuyer. Whether you're purchasing your first home or refinancing, the mortgage process can feel complex—and even small mistakes can lead to higher costs, delays, or lost opportunities.
At Homewise, we’ve seen how avoiding common pitfalls can save homebuyers thousands and make the mortgage journey far smoother. In this article, we’ll explore the most common mortgage mistakes and how you can steer clear of them.
1. Not Getting Pre-Approved Before House Hunting
Why It’s a Mistake:
Many buyers start shopping for homes without securing a mortgage pre-approval. This can lead to falling in love with a home that’s outside your budget or losing out to other buyers who are pre-approved.
How to Avoid It:
- Get pre-approved before you begin your search. Pre-approval not only shows sellers you’re serious but also gives you a clear understanding of how much you can afford.
- A Homewise pre-approval takes just minutes and connects you with the best rates available.
💡 Pro Tip: A pre-approval can lock in your interest rate for up to 120 days—protecting you from rate hikes while you shop.
2. Overestimating What You Can Afford
Why It’s a Mistake:
Lenders may approve you for a larger mortgage than what comfortably fits your budget. Stretching yourself too thin can lead to financial stress, especially when factoring in property taxes, utilities, and maintenance.
How to Avoid It:
- Use the “28/36 rule”—spend no more than 28% of your gross income on housing costs and 36% on total debt.
- Budget for hidden costs like home insurance, taxes, and repairs.
- Be honest with yourself about lifestyle expenses—leave room for savings and leisure.
Homewise Tip: Use our mortgage affordability calculator to determine a realistic budget.
3. Choosing the Wrong Mortgage Term
Why It’s a Mistake:
Many homebuyers default to a 5-year fixed-rate mortgage without considering shorter or variable-rate options. While this is Canada’s most popular mortgage term, it’s not the right fit for everyone.
How to Avoid It:
- Understand the pros and cons of fixed vs. variable rates.
- Shorter terms (like 2- or 3-year fixed) may offer lower rates and flexibility.
- Variable rates can lead to lower payments but come with risk if interest rates rise.
💡 Pro Tip: In a rising rate environment, locking into a 5-year fixed can offer peace of mind. If rates are expected to decline, consider a shorter term.
4. Not Shopping Around for the Best Rate
Why It’s a Mistake:
Many buyers accept the first mortgage offer from their bank without comparing rates from other lenders. This can cost you thousands over the life of the loan.
How to Avoid It:
- Work with a mortgage broker who can shop multiple lenders on your behalf.
- Compare rates from banks, credit unions, and alternative lenders.
- Let Homewise connect you with over 30 lenders to find the best rate and terms for your situation.
Even a small rate reduction (e.g., 0.25%) can save you tens of thousands over 25 years.
5. Ignoring Mortgage Penalties and Fees
Why It’s a Mistake:
Breaking a mortgage early—whether to refinance or sell—can result in significant penalties. Many homeowners are unaware of how costly this can be until it’s too late.
How to Avoid It:
- Ask about prepayment penalties when securing your mortgage.
- Choose a lender that offers flexible prepayment options (lump-sum payments or increased monthly contributions).
- Consider portable mortgages that can be transferred to a new home.
💡 Pro Tip: Variable-rate mortgages typically have lower break penalties than fixed-rate mortgages.
6. Forgetting to Factor in Closing Costs
Why It’s a Mistake:
Many first-time buyers overlook closing costs, which can add up to 3% to 5% of the purchase price. Without budgeting for them, buyers may find themselves short on funds at closing.
Common Closing Costs:
- Land transfer taxes.
- Legal fees.
- Home inspection costs.
- Title insurance.
How to Avoid It:
- Budget for closing costs early.
- Ask your mortgage advisor for an estimated breakdown of closing expenses.
First-time buyers in Ontario may qualify for land transfer tax rebates—check your eligibility.
7. Applying for New Credit Before Closing
Why It’s a Mistake:
Opening new credit lines (like credit cards or car loans) during the mortgage approval process can affect your credit score and debt-to-income ratio—potentially jeopardizing your mortgage approval.
How to Avoid It:
- Avoid major purchases or new credit applications until after your mortgage closes.
- Focus on maintaining your current financial profile.
💡 Pro Tip: Mortgage lenders monitor your credit up to the closing date. Keep your credit clean throughout the process.
8. Skipping Mortgage Insurance (When Needed)
Why It’s a Mistake:
If your down payment is less than 20%, you’ll need mortgage default insurance. Some buyers overlook this cost or don’t understand how it affects their payments.
How to Avoid It:
- Budget for CMHC, Sagen, or Canada Guaranty premiums.
- Consider increasing your down payment to avoid this fee if possible.
Mortgage insurance allows buyers to secure homes with as little as 5% down but adds 2% to 4% of the mortgage amount to your loan.
9. Neglecting Future Rate Increases
Why It’s a Mistake:
With variable-rate mortgages, homeowners may not plan for rate hikes. This can result in higher payments down the line.
How to Avoid It:
- Stress test your finances to ensure you can handle a 2% rate increase.
- Set aside extra savings as a buffer for potential payment increases.
💡 Pro Tip: Fixed-rate mortgages provide payment stability if rising rates are a concern.
Final Thoughts
Avoiding these common mortgage mistakes can save you thousands and make homeownership smoother and more rewarding. From pre-approvals to closing, working with the right experts ensures you make informed decisions at every step.
If you’re ready to start the mortgage process, Homewise simplifies it by matching you with the best rates and guiding you from start to finish. Apply today and secure the right mortgage for your future.
