Most people think that finding the best mortgage is all about the interest. While that plays a big part in your decision, you should also look out for the traps set by mortgage lenders that could cost you thousands of dollars more by the end of your term. Here are the pitfalls to look for and how to avoid them.
1. Ask for a break down of the fees. Don't get overcharged when it comes to closing the deal on your mortgage. Because it's such a large sum of money, it is easy for lenders to slip in grossly inflated fees, such as $100 for a credit check that only costs $25. To avoid this, ask the lender to give your a written schedule of fees that tells you exactly what you are paying for. If something looks suspicious, don't be afraid to ask for an explanation. It could save you hundreds of dollars.
2. Don't view your real estate agent as a personal finance expert. Real estate professionals have one area of expertise, and that's knowing how to value and sell a house. They are generally not trained to give you advice on the best mortgage to choose, so be wary if they are recommending certain lenders. It could be an honest tip from a helpful agent, but many times it isn't in your best interest to find a lender this way.
3. Establish your deal breakers beforehand. It's common for lenders to offer low interest rates to draw in clients. But if you decide to work with a particular lender based on this kind of deal, make sure that is what you get in the end. Sometimes a low interest rate is coupled with extremely high closing costs, or sometimes the interest rate is simply a quote for someone with a near perfect credit history, which you may or may not have. This is where a mortgage calculator Canada is useful. Do the math and ask the tough questions before you sign, and if you don't like what you're hearing, walk away.
4. Lock in the rate when you're ready and sure. Mortgage rates are fickle creatures. Not only do they change from day to day, but they can also change within a day. This means that the rate you first saw when you talked to a lender may not be the same one you get when you're ready to do business. Make sure to check the rate again when you decide upon a lender, and if it's still in your favor, lock it in.
5. Ask about prepayment penalties. Who could imagine being punished for being financially responsible and paying off your debts early? It seems counter intuitive, but this is actually how many mortgages work. Before signing, ask your lender what will happen if you pay off your mortgage early, and if there is a prepayment penalty, try to get it eliminated or move on to another lender.
Shawn Manaher is a former financial advisor, has founded 5 online businesses, and is a coach, speaker, podcast host, and author. He's been featured on Forbes, The Consults Corner on TAE Radio, The Writing Biz, What's Your Story, and more.