Thanks today for this interesting guest post talking about parts of mortgage costs and fees that are not always out in the open. I found getting my first mortgage quite difficult because all these fees seemingly appeared from no where and I was not well prepared. These days I would rather just avoid getting a mortgage but if it is something you want to do it is best to be as educated as you possibly can. If you have anything to comment on or add please do so in the comments below.
As a function of increased competition for the home mortgage lending dollar in recent years, there has been a tremendous upsurge in the number and variety of mortgage products on the market. Associated with this increase in mortgage product options is a dizzying rise in the number and size of fees accompanying these products.
Part of the process of selecting the best mortgage option for you is to keep the effect of these fees to a minimum. The overall impact of these costs can be tremendous; estimates range from 6-8% of the value of the property, which can easily run into the tens of thousands of dollars.
Tracking the size of these expenses can be a sobering experience; most of the major lenders have a mortgage calculator on their websites which will show you some of these costs, but some fees remain unaccounted for.
There are strategies and tactics available to minimise these fees, including:
- Read the fine print and ask questions. All of these fees are in the contract, and if you go looking for them—either literally by going over the terms of the mortgage or by asking questions of mortgage brokers, loan officers and legal consultants—you can familiarise yourself with all of the hidden costs in the various options available to you. Knowledge of the terms can help you avoid actions that would force fees to kick in. A good example would be an investigation of any early payment penalties that a given mortgage product might require if you think you might make extra payments during the term of your loan.
- Make sure that the product you choose has features that you really need or want. The mortgage products with the largest number of features often have the highest and most numerous hidden fees, so by reducing your options to only those choices with the features that are critical to you, you may be able to lessen your exposure to such costs.
- One of the most avoidable expenses shows up in the form of LMI (lenders mortgage insurance). LMI is required for mortgages with deposits less than 20% of the purchase price of the property. By waiting to apply for a mortgage until you can exceed a 20% deposit, LMI can be avoided entirely.
- By engaging in advance planning, some fees can be overcome. By steering clear of fixed rate mortgages if you think you might sell your property in the next few years, break costs can be avoided.
Some simple / sound advice and although some are obvious they are things many people, in the moment, don’t bother to do!