There are a number of mistakes homeowners make when shopping for mortgage. To avoid making these mistakes you need to do your homework and shop from a variety of mortgage companies for the best deal on your loan.
Predatory mortgage lenders prey on homeowners that have not done their homework and do not understand how mortgages work. Don’t be victims of predatory lending practices; research your mortgage prior to signing the contract.
Mortgage lenders disguise fees; these charges are often buried in the paperwork. Here are some of the ways lenders try to disguise their fees.
Avoid Prepayment Penalties
Prepayment penalties are designed to discourage you from refinancing the mortgage. If you sell your home or refinance the mortgage with a prepayment penalty in your contract you may be required to pay as much as six months worth of interest on the loan. Demand that your lender removes any prepayment penalty from your loan contract; if the mortgage lender refuses take your business somewhere else.
Option Mortgage Payments
Some mortgages advertise minimum monthly payments. These “option” mortgages do not repay enough each month to cover all of the interest due. The interest that is not paid is added on to the principal loan balance. If you make the minimum payment each month, not only will you never pay off the mortgage, your mortgage will grow each month. This phenomenon of mortgage growth is called “negative amortization.” As time passes the value of the home will not be enough to secure the balance of the mortgage.
Bait-and-Switch Interest Rates
Mortgage that advertise incredibly low interest rates are advertising a “discounted interest rate.” This interest rate is only valid for an introductory period. At the end of this introductory period the lender will adjust the mortgage interest rate to the actual value, plus lender markup. If you are not careful you easily overpay for your mortgage with this adjusted interest rate.
To learn more common mortgage mistakes you need to avoid, sign up for our free guidebook: “Five Things You Need to Know before Refinancing Your Mortgage.”