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Did you know your lender can rip you off on your mortgage?
Lender disputes, continuous bargaining, low Equifax credit score, and many
factors can play a major role in setting your mortgage terms.
Of course, it can also be the result of a clerical error.
However, the point is if you don’t know how to read and analyze your mortgage
document, you’ll be doomed!
Ah, as if getting a mortgage with bad credit in Canada is not already tough
enough.
Way to kick you while you’re already down!
Below we have mentioned ways your mortgage lender can rip you off. So, watch
out to not get screwed.
What To Know Before Signing Your Mortgage?
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Signing a mortgage is important as it decides what interest rates you’d be getting
for your loan terms.
And even a small numerical mistake can rack endless debts. So here’s what you
need to know before signing the document:
1. Understand Buying Cost
2. Comprehend Mortgage Type
3. Read The Document
Of course, the third step is the most critical as without it, you can’t really analyze
the first two things. So let’s get into all three a bit more:
1. Analyze, Compare, & Calculate Every Mortgage Cost
This comes in handy when you’re still in the negotiable phase.
Before curating the document, you must first know about every possible fee you
might have to pay before the closing loan term.
● There might be a signing fee you don’t know about!
● There might be a penalty fee if you missed one loan payment!
● There might be an additional fee before the loan closes!
● There might be a mandatory mortgage origination fee (for your loan type)!
Let’s hear the details from the expert himself:
How much you’ll pay for the mortgage depends entirely on interest rates and
hidden costs.
So, you have to ask and understand everything to save some extra funds for cost
surprises.
See: Credit Building Tips To Get Good Mortgage Rates!
2. Know Mortgage Type, Agreement, & Worst Scenarios!
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The next thing you should be clear of is the type of buying you want to make.
Depending on your mortgage type, the lender might ask you for an origination fee
of up to $11k (or more) that you clearly don’t understand.
Your mortgage type may come with additional payments you don’t know and
other agreement terms you’re completely unaware of.
● The key is to go through every line and ask what you do not understand!
● Talk to your lender to give you some time with the document detailing the
type of mortgage, interest, loan period, etc.
So, the point of all this discussion is to make you understand how important it is
to read your document.
3. Read, Review, & Understand Your Mortgage!
As we previously stated, reading the paper is necessary in order to review it for
errors.
In fact, OBSI, a top Canadian finance organization, ranks bank document errors
among the top 10 customer complaints.
Here’s why reading your mortgage document is important:
1. It includes information about risks and liabilities
The mortgage document is a legal paper that can hold you accountable for
everything you agreed to (knowingly/unknowingly).
● Let's say you decided to fix the interest rate at 2.4% for the duration of the
loan. However, the number was altered, either on purpose or by error, to
2.8%.
● But you didn’t read the document carefully and signed it!
So, now can you challenge the written 2.8% (on the document) with your verbal
2.4% agreement? Of course, not!
And we don’t have to tell you how much interest and additional fees that mistake
can screw your mortgage terms!
See: 7 Credit Report Errors You Must Know For A Good Equifax Credit Update!
2. It can help you negotiate better terms
Your mortgage document is the security for you and the lenders.
It will act as proof for you with favorable interest rates and other terms. While for
the lender, it becomes a collateral document if you fail to repay the money.
● When you read the document, you can find many loopholes you would
otherwise have missed.
● In fact, you can also get help from a mortgage broker or your financial
advisor to read the document.
Here watch a video by Lizy Hoeffer and learn to read your mortgage document:
Ways Your Mortgage Can Screw You!
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Legal issues might arise when dealing with a mortgage firm, most usually due to a
breach of the agreement.
Similarly, further problems could emerge as ripoffs, hidden expenses, or
mortgage fraud.
Let’s read some ways your mortgage lender might rip you on your mortgage:
1. Prepayment Penalties
Your mortgage broker or lender usually profits off the interest on the money you
owe.
So, they won't be happy if you pay a majority of the sum (if you can afford it) in the early period!
| The less the money owed, the less the interest, and the less the profit for the lender. |
The less the money owed, the less the interest, and the less the profit for the
lender.
● The lender might hide some prepayment penalty fees to earn some profit.
● These are usually applied when you fail to pay the loan by the said time
(decided before signing the document).
● The mortgagee might have to pay an additional sum other than set
payments.
Sadly, not everyone knows this, and the majority must pay the amount specified
in the contract.
2. Excessive Broker Percentage
If you’re sealing the mortgage with the help of a third party, say a mortgage
company or a private mortgage broker, you must know the percentage they earn!
You can choose to pay the broker yourself or ask your lender to add the cost into
the loan payments. However, there’s a catch in the latter:
● The lender and broker might have an inside deal that can increase the
loan's overall cost.
● An increase in the loan payment will eventually increase the interest rates.
So, paying the broker yourself is better to avoid racking up the interests and
additional fees.
Bonus: Click to read whether or not you should hire a mortgage broker for your
loan process.
3. Bait And Switch
It is referred to as the difference in the interest rate promised at the start versus
at the time of closing.
Generally, the interest rates you are offered should match the percentage at the
loan closing. (which is usually not the case!)
● The bait and switch might be due to the inflation and fluctuation in the
housing market.
Or,
● It could be a way for a lender to scam and rip you off on your mortgage!
After a borrower applies for a mortgage, they are typically guaranteed one
interest rate, but when the loan closes, they are given a different and even higher
rate.
This is one of the most prevalent ways that lenders exploit borrowers.
4. Private Mortgage Insurance
Some lenders might ask the buyers to purchase private mortgage insurance (PMI)
if their down payment is less than required.
Sometimes, the lender might increase your interest rate instead of the PMI.
But we all know a higher interest rate won’t do you any good in the long run!
Although requesting the lender to eliminate PMI can take some time, doing so
can result in huge financial savings for the borrower.
● Rather than paying for PMI individually, the borrower must pay a higher
interest rate.
● Which can add thousands of dollars more in interest expenses throughout
the loan (unless they can refinance).
Experts advise asking the lenders if they’ve included the PMI into the loan terms
or if you have to pay it separately.
You don’t want to double pay anything without taking your lender or broker into
the loop.
Final Thoughts
Getting a mortgage is an important decision in your life. It can help you buy your
dream home in Canada.
All the reasons why you don’t want it to screw your financial life over!
No need to hurry things up because you need the funds immediately. In fact, a
bad mortgage decision might cost you more than you can imagine.
So, experts advise buyers to spend time reading and understanding their
mortgage documents.