25
Jan
How To Tell If You Are Getting The Best Mortgage Deal

It is every home buyer’s desire to ultimately buy a home and save some money if possible while at it. There are some checklists that you need to go through when you talk to your mortgage advisor, and some questions that you need to ask to be sure you are actually saving some cash in the grand scheme of things.

How low are the rates?

Cheap is always expensive. A seemingly cheap rate may end up costing more in the long run, even if it saves you some cash in the beginning. You will still need to ask if the rate being quoted is the lowest possible rate, considering your qualifications. Your mortgage lender needs to be able to provide the lowest mortgage rate possible, but you also have to approach it with caution, looking at the long term implication. Can the mortgage provider match a much lower rate if you found one elsewhere? These are the kind of questions you need to ask to avoid feeling short changed later because of oversights on your part.

Is it possible to get out of a closed mortgage?

Find out if it is possible to be let off a closed mortgage early, but with a penalty. Some strict lenders will only let you off if you first sell the property, while others only let you off once the mortgage term expires. If you have every intention of paying for the mortgage for more than six months, it is advisable to choose a lower rate and pay for the penalty if you need to get out sooner.

What is the mortgage lender’s stand on refinancing?

You need to ask whether they will let you increase your mortgage at fully discounted rates, and with no additional penalty. This is in the event you want to refinance your mortgage or buy a different home that costs more than the current one. There are some lenders who charge you a penalty for increasing your mortgage and some will even give you poorer rates than before. 

Find out whether your mortgage is re-advanceable. This means that if you have 20% equity, you can re-borrow that principal that you have already repaid. The beauty of this arrangement is that you can use this as an emergency fund, and there are two ways that it is made available. One is that it could be manual, where the provision is not automatic and you have to apply for it, or it could be automatic and the paid back principle is available without you having to apply for it.

Is it wise to shift from variable to fixed mortgage?

You need to find out what rate you get when you do shift from a variable to fixed mortgage. The rule of thumb however, is that you rarely get a favorable fixed rate when you convert your mortgage from variable to fixed mortgage. Since it is practically impossible to predict the change in rates, your mortgage advisor will most likely tell you that it is not a good idea to go the variable option, hoping the rates will fall. If you do go variable, it may be wiser to go for the long haul, not for short term.

Can the mortgage be split into different parts?

The splitting of a mortgage into different parts is known as a hybrid mortgage, which allows you to lock a part of the mortgage into one fixed rate, or into different parts at a fixed rate, while the other parts may stay in form of variable rates, which serves to minimize and spread risk.

It pays to be vigilant, thorough and practice due diligence in the acquisition of a mortgage. Some things may appear to be straight forward, but you need to read between the lines. Question everything, nothing is always as it seems and you may discover hidden costs that you did not see in the fine print. Ensure you are well informed, and write down all the questions you need to ask the mortgage advisor.

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