Jaspreet Singh: Avoid These 5 Costly Homeowner Mistakes
Written by
Ashley Donohoe
Edited by
Rebekah Evans
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Many people see homeownership as a way to build wealth and enjoy more stability. However, financial expert Jaspreet Singh has a different view that homes are liabilities rather than assets.
Being a homeowner does come with risks, such as high ongoing costs, value swings and potential buyer’s remorse. Plus, some decisions made when picking your home, borrowing money and taking care of the property can cause financial damage.
In a YouTube video, Singh discussed these five costly homeowner mistakes to avoid.
Creating Rent Hikes
Unlike renters, homeowners can benefit from stable payments over 15 to 30 years with fixed-rate mortgages. However, some people end up with rising mortgage payments due to refinancing when home values go up or they decide to cash out some equity.
“Most people are getting stuck in their own mortgage hike game because they keep pulling money out, they keep refinancing and not taking advantage of that fixed-rate mortgage,” Singh explained.
He gave an example of a $2,500 mortgage payment jumping to $2,800 after refinancing. While this doesn’t seem like a lot, that’s an extra $3,600 per year that could go toward the loan’s principal or investments.
Consider that investing the $300 per month at a 6% return would leave you with nearly $84,000 after 15 years.
Using Your Home Like a Checking Account
Singh discussed how home equity line of credit (HELOC) cards tempt homeowners into taking out more secured debt that drags them further away from having a paid-off property.
While some people use these cards to pay for necessities, others splurge on luxuries like fancy clothes or vacations. Either way, there’s more interest and another monthly payment. Plus, the Federal Trade Commission warned about the risk of foreclosure for defaulting.
Singh said home value drops could leave borrowers with mortgages and HELOCs underwater. For example, your $500,000 house might become worth just $400,000 and leave you stuck with debt exceeding that amount. This shows houses aren’t guaranteed money-makers.
Treating Mortgage Payments As Investment Deposits
Another costly mistake is looking at your monthly mortgage payment, assuming that amount is helping you build wealth and not investing any money in other assets. According to Singh, this thinking disregards how lenders smartly structure mortgage payments.
“What happens at the beginning is they front-load their mortgages, which means most of this money is going to the bank in the form of interest and a little bit is going to principal,” he said. “And it isn’t until very far into your loan that you actually start to see the majority of your mortgage payment go towards the principal balance of your mortgage.”
Singh used an amortization calculator to show that it wasn’t until payment number 21 of a $400,000 30-year loan at 7% that the principal exceeded the interest. Until then, most of each payment isn’t building wealth.
Being a Cheap Homeowner
“Being cheap can be one of the most expensive things that you can do because, yeah, you might save a few bucks today, but it can cost you a whole lot more dollars in the future,” Singh said.
He gave an example of skipping homeowners insurance and later having to cover hefty expenses yourself when someone wrecks into your house. He also warned about hiring cheap people to do home repairs and having to pay for another provider to fix the mistakes.
Paying for financial protection and doing research to find reliable people to fix your home is worth it since you can avoid headaches, lost time and more wasted money.
Buying an Oversized House
While the roughly $357,000 national average Zillow home price isn’t cheap, buyers create more financial stress when they pick bigger places than they can afford. Singh said the down payment, mortgage payment and moving costs should all be affordable to proceed.
He recommended buying if you can put 20% in cash down and cover your mortgage payment and other monthly spending with no more than 75% of your total income. He also warned that bigger houses lead to higher upfront and ongoing costs, so consider your budget and savings.
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