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Is The Lowest Mortgage Always The Best?

It has often been said that when something looks too good to be true it probably is. This applies perfectly to mortgage rates. Many lenders now charge fees in addition to the monthly payment that you make for your mortgage and these fees can result in you paying more on your home mortgage loan than if you had chosen a mortgage with a higher interest rate in the first place!

Watch out for the pre-payment penalty clause

Make sure your selected loan does not have a pre-payment penalty. Many people get what they consider the lowest mortgage rate and are not even aware that they have a prepayment penalty of 3-5 years. They find out when they try to refinance or sell off their existing loan that they would need to pay 6 months interest or more as a prepayment penalty. Financial institutions and mortgage brokers also benefit in giving you a pre-payment penalty since they have you tied down with their loan product for 2-5 years not to mention higher compensation for them in a form of rebates if they can persuade you to get a loan with a pre-payment penalty. Do not fall for it. Never get a loan with a prepayment penalty.

Loan origination fee

If you are refinancing your mortgage at the lowest mortgage rate keep an eye out for the “Computerized Loan Origination Fee.” Would you pay $1,200 for filling out a form on a flashy website? Probably not; however, the good news is that you can avoid paying this fee. When searching on the internet for a mortgage site always look for the “Licenses & Disclosure” statement. If the mortgage site has a Licenses & Disclosure statement the Computerized Loan Origination fee will be disclosed there. Be careful of mortgage sites that do not have disclosure statements at all. These are a special category of lender known as “Broker Banks” and thanks to the Banking Lobby are exempt from the Real Estate Settlement Procedures Act. These mortgage lenders are not required to disclose their fees.

Mortgages can be expensive and exhausting financial commitments. It is understandable if you find a great deal to want to take it straight away, but when is what looks like a cheap mortgage really a good offer? There are often hidden charges and restrictive terms and conditions hiding behind a low interest rate, so look out for the following before you sign on the dotted line.

Make sure you check the Loan-to-value percentage

When taking out a home mortgage loan, you put down a deposit on the amount you are borrowing. The loan-to-value (LTV) percentage is very important. This is the amount of money you borrow against the property value, expressed as a percentage of the property value. So, a high LTV mortgage means that lenders need more insurance against the borrower defaulting on payments. This insurance takes the form of Higher Lending Charges (HLCs), which is the first thing to look out for when searching for lowest mortgage rates. The higher the LTV, the more likely you are to be subjected to HLCs and the more the HLC will be. HLCs are calculated as a percentage of the portion of the loan above 75% of the property value, which can add up to thousands. It is important to consider whether or not you will have to pay HLCs when comparing mortgage products.

Payment protection insurance

The final payment you can fall prey to is Mortgage Payment Protection Insurance (MPPI). It is always advisable to take out MPPI, as with a policy like this your mortgage payments are covered for a specified period of time if you become ill, injured or unemployed. A common mistake many people make, however, is to rely too heavily on their MPPI, or not know the circumstances under which their MPPI does not apply. For example, most MPPI policies do not allow you to claim cover before 60 days have passed since you took out the policy. Periods of unemployment that could have been predicted, such as those due to pre-existing medical conditions, are also not often catered for.

So, when searching for the lowest mortgage rate think outside the square and read between the lines. Take your time to research the market and always ask for expert help if you are unsure, so that you don’t end up making a decision that you will later regret.