Mortgage Trick or Treat

October 20th, 2014
Taking out a mortgage is one of the biggest decisions you'll ever make. Whether you are just entering the mortgage world or looking to refinance an existing loan, it's important to understand the complexities of the mortgage process if you want a home loan that truly works for you. With Halloween quickly approaching, let's learn how to avoid some common mortgage 'tricks' so you can 'treat' yourself this holiday season.

There are lots of 'tricks' to avoid when taking out a mortgage, including hidden fees, confusing interest rate structures, and lack of flexibility. ; Unsuspecting borrowers can easily be fooled by complex loan arrangements, and just as easily fool themselves into thinking they've found the 'perfect' mortgage solution. ; The reality, however, is that the perfect mortgage doesn't exist. ; Instead, borrowers need to stay on their toes and weigh up the pros and cons of each individual deal both before and after taking the plunge.

The first 'trick' to avoid when taking out a mortgage is understanding the difference between the cost of interest rates and the entire cost of a loan. ; While interest rates are a very important variable, some low rate mortgages come with a surprising range of additional fees. ; Interest rate fixation is a common 'trick', with low rates often offset with higher fees and charges throughout the loan period. ; If you want access to low rates but also want to avoid excessive fees and retain account flexibility, the best solution is to review your mortgage annually and keep your eyes on the true cost.

Another 'trick' to avoid is the confusion surrounding fixed and variable interest rates. ; Low rates can be fixed for a short period before reverting to a higher rate, with unsuspecting borrowers often left wondering what happened. ; While the choice between a fixed or variable rate home loan is a highly individual one, it's always important to do your homework and compare the rates over a period of time. ; Before the expiry of any fixed loan period, it's also a good idea to review and compare your mortgage options. ;

If you really want to 'treat' yourself this holiday period, it is possible to take advantage of low mortgage interest rates instead of relying on expensive credit cards. ; While it always feels good to pay off your mortgage, it's not always the smart thing to do. ; If you have existing credit card debt, it's only logical to pay off the debt with the highest interest rate first. ; Conversely, if you need to spend money on Christmas shopping or something else unavoidable, why rack up high interest debt when you can use mortgage borrowing capacity charged at a much lower rate.

While funnelling your home loan money into your shopping budget may make sense sometimes, however, it's not normally the smart thing to do. ; In fact, unless your mortgage debt is directly competing with debt charged at a higher rate, it's always a good idea to make as many repayments as you can. ; For example, borrowers often decide to make minimum repayments in low rate environments, which is precisely the best time to pay down a mortgage faster. ; It's a common 'trick' to spend when times are good, instead of taking advantage of good conditions so you can 'treat' yourself down the road. ;