3 Outdated Pieces of Mortgage Advice

by Christy Bieber | Published on Oct. 3, 2021

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Mortgage lender goes over documents with couple.

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Is old-fashioned advice interfering with your ability to make the best decisions about your loan?

A mortgage will probably be the largest debt that you take on over your lifetime, so you want to make the right decisions when it comes to your loan. Unfortunately, you may be unduly influenced by some outdated pieces of advice that don't necessarily apply to you.

To make sure this doesn't happen, check out these three common mortgage tips that may not necessarily be true in every situation.

1. Interest is tax deductible

Chances are good that you'll hear your mortgage is more affordable than it may initially seem because interest is tax deductible. However, while interest is tax deductible on loans up to $750,000, you need to itemize when you file your taxes in order to claim the mortgage interest deduction.

Itemizing makes sense only if you can save more by deducting for specific expenses than you would save by claiming the standard deduction. For single tax filers, the standard deduction is $12,550 in 2021 and for married joint filers it's $25,100. For most people, their itemized deductions don't add up to more than that, so claiming the standard deduction is the smarter financial move.

If that's the case for you, you actually won't be able to deduct your mortgage interest and can't expect to save on your home loan thanks to the government subsidizing part of your interest costs.

2. It's best to work with a local bank

Traditionally, people looking for a mortgage were often advised to work with their local bank. Since they already had a relationship with them, the theory was that the local bank would be more likely to approve them for a loan and offer a competitive rate.

Today, that's not necessarily the case. There are a huge number of different options for loans now, including online mortgage lenders that often offer very competitive terms on home loans. Borrowers should get quotes from multiple lenders and shouldn't restrict themselves only to local financial institutions in their quest to find the most affordable loan.

3. You need 20% down

For a long time, it was also widely accepted as fact that you should make a 20% down payment on a home. However, the majority of home buyers no longer do that. In 2019, the median down payment for all buyers was just 12%, according to a study by the National Association of Realtors. For first-time home buyers, it was even lower at 16%.

Unfortunately, borrowers who believe they need to make a 20% down payment could end up putting off homeownership for a really long time -- perhaps unnecessarily.

Now, it is definitely ideal to make a 20% down payment if you can. Doing so gives you the broadest choice of lenders willing to work with you, so it is more likely you'll be able to get the most affordable possible loan. You can also avoid having to pay private mortgage insurance (PMI), which borrowers with a smaller down payment must pay for to protect lenders from loss. And you won't have to worry as much about ending up owing more than your house is worth.

But if you're otherwise in a good financial position to purchase a home, feel it's a good time to buy, and you don't have a 20% down payment, you shouldn't let this outdated piece of advice prevent you from making your home ownership dreams come true -- especially since it's possible to buy a home with zero down payment.

Ultimately, you need to consider the specifics of your situation and make sure you're making a fully informed choice about when to buy, who to get your loan from, and how much your home loan will cost you.

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