Four Things You Should Know About Your Mortgage

Mortgage lenders are in the business of making money. But in these days of tighter lending criteria, business isn’t as brisk as it was just a year or two ago. Instead of making money on new mortgages, lenders have another option: They can extract cash from their existing mortgages, but only if the fine print allows. Here are four ways lenders can make even more money on your mortgage. So before signing, look out for:

Prepayment Penalties

When you repay your mortgage early, lenders lose money. The way to discourage this is by including a prepayment penalty in the mortgage. The bigger the penalty, the more inclined you are to stick with the originally negotiated terms. Even if you don’t think you’ll pay your mortgage off sooner than necessary, you always want that option. So look for a prepayment penalty and if you find one, be sure you understand how it’s calculated. If you can, negotiate it out of the fine print before signing.

Exit Fees

An exit fee is a fee your lender may impose for simply switching to a different lender when you want to pay off your mortgage balance. There isn’t anything ethically wrong with charging a nominal fee to cover the current lender’s costs of administering your mortgage. The problem lies in the fine print that allows the lender to charge variable rates rather than a fixed fee. With a variable rate, you have no control over how high this fee can get. Some experts claim you can refuse to pay this fee, and this may or may not be true. That’s why it’s in your best interest to know up front whether or not this fee exists and how it is calculated.

Standard Variable Rate

Generally 2% higher than the Bank of England rate, the standard variable rate continually changes. Once your current deal expires, you will be charged this rate if you have not already found a better deal with some other lender. If you find you are paying the Standard Variable Rate, you can probably save money by remortgaging as soon as possible.

Other Lending Fees

That great mortgage deal might not be such a deal after you factor in all the other charges the lender has included. Even small charges eventually add up to a sizeable amount so take time to understand all you’re being asked to pay, before you agree to any mortgage. It’s your money and you work hard for it. So keep it in your wallet, where it belongs!