When you’re considering doing anything to alter how you establish and pay your mortgage, avoid the following hazards:

1. Adjustable Rate Mortgages, known as “ARMs.” Although an ARM might save you a lot of money during the first few years you pay your mortgage payment, there may come a time when the interest rate – and your monthly payment – rises too high to be affordable.

• And when it does, you have no control over that rate, because you agreed to the unknowns early on in the process of accepting the mortgage loan as it was designed. If you intend to stay in your house a long time, you’ll want to definitely avoid an ARM.

• However, an ARM might work if you’re planning on selling the home and moving within the first couple of years of home ownership.

2. Interest only mortgages. An interest only loan means that for the first several years of the loan, you’re paying nothing toward the principal amount you borrowed and 100% toward the interest. Your principal will, therefore, not reduce at all over these years, which is a disadvantage for you.

• Plus, you’ll eventually get hit with having to pay the total amount of that principal over a shorter period of time.

• When should you consider an interest only mortgage? If you’re planning to move during the first few years of the mortgage, this type of loan might work.

3. Committing to a shorter term loan than you can comfortably afford. Although a shorter term mortgage sounds great can you comfortably pay the increased monthly payment on time consistently? Keep in mind that it’s wiser to spend beneath your means rather than right up to the top of them.

• Ensure you look at all your incoming funds and outgoing expenditures and figure up total monthly expenses before you commit too quickly to a shorter term mortgage.

• Consider that your income could reduce in the future because of some reason that you may not know about right now (like an injury, company lay-off, or employer closing). And those unknown events could affect your ability to pay a high monthly mortgage payment.

4. Not researching the broker or lender. The unfortunate fact is that there are predatory mortgage companies and banks that you should avoid. Even though it puts more work on you, do your upfront research on the lending institutions and brokers you’re considering doing business with. In the long haul, you’ll be better off for it.

5. Agreeing to add your closing costs into your loan. Never a good plan, this decision can easily cost you in five figures over the term of your mortgage. Always pay your closing costs (or have the seller pay them) upfront.

6. Obtaining a mortgage loan that penalizes you for paying it off early. You might want to pay extra mortgage payments throughout the year to pay down your principal quicker, so delve into the details of your loan to ensure there isn’t a prepayment penalty.

• When your loan penalizes you for paying it off early, then you’re not saving much money from your efforts to get out from under your house payment.

7. Refusing to hire a real estate attorney to look over your mortgage documents before you close. Yes, it will cost you a few hundred dollars, but you’ll be glad that someone was representing your interests in the transaction.

• Use word of mouth to find a competent real estate attorney in your area. Allow your attorney an appropriate length of time to carefully look over your mortgage purchase agreement and bank documents.

We all hope to receive the best deals we can on our mortgages. And we want to do whatever possible to save money. 

However, in your quest to save money using your mortgage, exercise special cautions regarding these issues. When you do, you can be confident of successfully achieving your financial goals.