4 Sly Mortgage Traps That Will Cost You Dearly

Perturbed young family discussing mortgage loan and financesFor most Americans, the decision to purchase a home is one of the most significant, far-reaching financial moments of their lives. Not only does home ownership carry the constant responsibilities of interior and exterior upkeep; for most of us, our mortgage is also our costliest monthly expense.

If you’re even considering taking out a mortgage, know this.  You’re entering an arena with large sums of money up for grabs (for the agent and sellers), in a highly illiquid medium.  In other words, with a few exceptions, a mortgage isn’t something you can get out of without some type of struggle.  Whether it’s selling the house altogether or refinancing your terms, once you’re locked in, getting out of the deal can involve myriad complications—especially if you need your money (and your mobility) back quickly.

Given all this, you need to be on your guard when considering a mortgage.  There are unscrupulous people and companies looking to part you and your hard-earned money in more ways than one.  Here are 4 of the most common traps you need to avoid.

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Trap #1: Stars in your eyes over that amazing interest rate?  Look twice.

One of the most common tactics employed by lenders is the honeymoon rate.  For the uninitiated, this is an ultra-low rate advertised to hook consumers into a loan.  But what lenders try to conceal is the fact that honeymoon rates (as the name implies…) are short-lived.  And they’re usually in place on unappealing loans that banks know people wouldn’t consider otherwise.  Would you eat rotting meat if it was garnished nicely?  I didn’t think so.

Most honeymoon rates expire after a year.  So if you fall into one of these without doing your homework, that 2% rate you were so ecstatic about in 2017 could balloon to much higher levels in 2018.  And if you hadn’t read the fine print, you’d be financially unprepared for the sudden rate hike, and might lose your home.  The potential consequences here are dire.

Trap #2: There’s far more to a lender than their rates…

One of today’s largest risks to homebuyers is developing financial tunnel vision.  It can be tempting to prioritize interest rates, and shop for the lowest one possible.  This is certainly a good idea, but if you don’t combine that with other carefully thought-out criteria, you’re just begging to get burned.

In addition to slippery honeymoon rates, many lenders use eye-catchingly low rates to conceal the litany of other flaws in their business.  Make sure, at all costs, that you don’t find yourself in bed with one of these groups.

A surprising number of lenders, for instance, don’t offer online payment options (in 2017….really, guys?).  Picture this.  You’ve just bought your first home, and had your first child about a year ago.  Life is hectic, and you have so much on your mind that you’ve forgotten to pay your mortgage until the last possible minute. But the bank’s been closed for an hour, and now you’re stuck with a late payment on your record.

Do your homework, and expect the unexpected.

Trap #3: Preapproved?  Don’t be too sure about that….

A troubling number of lenders fail to properly vet their preapprovals these days.  Due to inefficient management, failing company infrastructure, or any number of other causes, many lenders send preapproval notices they never should have.

If you’re just reading this in passing, perhaps this may not seem like too big a deal.  A mere corporate oversight, things happen.  But imagine being mentally, emotionally, and financially primed for a home purchase (one of the biggest decisions of your life).  You’ve worked hard, done your research, and you’re ready for the next step in life.

But at the very last moment, you’re informed that an error was made in your lender’s preapproval process.  You’re not, in fact, eligible for the loan.  They made a mistake in their processing.  Yes, this particular trap arises more from human incompetence than greed or malice.  But can you imagine how that would feel after investing so much time, energy, and possibly money?  You’ve been warned.

Trap #4: Do They Process Payments in a Timely Manner?

In the age of the internet and constant connection, it’s easy to assume that your lender automatically offers swift payment processing.  That assumption could cost you hundreds if not thousands of dollars over the life of your mortgage, depending on your personal situation and payment habits.

If you’re someone who tends to wait for the end of the month to settle your financial affairs, then even a few days’ lag could land you in hot water.  Even though it isn’t an intentional late payment, the responsibility for such mishaps will always fall to you.

Very rarely will you win one against a mortgage company, especially if they’re one of the bigger players.  It’s vital that you have solid information on all aspects of your lender.

Conclusion

Purchasing a home is one of the largest financial decisions that most of us will ever make.  When you enter the market, you suddenly find yourself in a world where large sums of money are changing hands, and the asset you’re planning to purchase is highly illiquid.

This combination can be particularly dangerous to the uninformed.  From slow payment processing to spring-loaded honeymoon rates that can double or triple without warning, homebuyers expose themselves to countless opportunities for swindling and manipulation.

Be informed, be intelligent, and come out on top.

Posted on July 14, 2017 by in Mortgages

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