People believe that the interest rate is the most important thing to save on the mortgage, but there are fees, expenses and linkages that can make a seemingly cheaper mortgage the most expensive. These are the precautions before signing the mortgage.
1. Don't Choose Your Mortgage for Interest
That is to say, by differential interest. It is the first thing everyone usually fixes on, because they believe that a lower differential will mean paying less. And this is not always the case. The differential is the interest added by each bank to the Libor (or other reference index), which varies from one institution to another and is usually not lower in order to do us a favour, but rather so that we do not look at what it entails.
Often, after a low interest rate, there are other associated expenses that we do not pay attention to: in exchange they want us to take out a mortgage life insurance policy, a home insurance policy, a pension plan, a direct deposit of our payroll, which we consume with their credit cards... And that is the real trap.
In addition, the conditions of a given mortgage may include paying large expenses in the constitution, penalties for amortizations or early cancellation, etc., commissions that can considerably raise the price of the loan. So be careful, take precautions before signing the mortgage because interest is not everything. Not at all.
2. Don't invite everything
The costs of setting up the mortgage must not only be paid by the client. The registration in the land register, the valuation of the house, the notary, the tax on legal and documented acts... add up to about 10% of the price of the house and do not have to be charged to the client alone.
Some consumers have sued claiming their rights, and have proved them right (there is the scandal of soil clauses), which has allowed them to recover the money paid for abusive clauses.
Although not all courts are ruling the same thing and although the last thing anyone (other than a justice worker) could want is to get into lawsuits, the reality is that it is currently assumed that the costs of notary, agency, stamp duty, deed of loan, etc., must be shared between the bank and the client.
3. Don't commit yourself for life
It is important to find the balance between the number of monthly payments and the monthly fee. Sometimes we lengthen the time to 25, 30 years... to pay less each month, but that can significantly boost the total interest.
Perhaps we can make up for fewer years of paying the mortgage even if we make a greater effort at the beginning, or renegotiate the total time after five years, when perhaps we can face the monthly payments more comfortably. That is why it is important to take precautions before signing the mortgage and know what would happen in case of renegotiation of the debt or what commissions would make you pay to reduce the term.
4. Know the cost of shortening the ratio
Sometimes luck smiles on us and we receive an extra income for a small inheritance, a well-paid job, a tenth prize in the lottery... In those moments we can afford to amortize the mortgage loan before the end of the established term, either for part of the debt or for the entirety. The entity can charge us an amount depending on the damage we cause by not charging the expected interest, although not all banks do.
The abandonment fee is a small percentage of the amount you pay back before the time initially planned. It has legal maximums. For mortgages signed after 9 December 2007, the commission cannot exceed 0.5% of the amount you repay in advance, if it is in the first five years of the mortgage; if it is after this period, it can amount to 0.25% of the amount repaid.
Another extra commission that the bank can take out of the sleeve when amortizing amounts of the mortgage loan is the compensation for interest rate risk. And although there are no legal limits here, it is established that it can only be charged if the early amortization generates a loss to the bank. This is one of the precautions before signing the mortgage that may be more relevant in the future.
5. Choose your notary
The notary isn't someone lined with cash who just shows up to sign. He is a professional who is willing to give you information and explain what you don't understand. So go to the one that interests you, to the one that orients you and informs you, to the one that clarifies all the concepts for you. You have the right to choose it and the bank cannot impose it.
Mortgages are cumbersome. It is our obligation to read the small and large print, all the sections of the mortgage loan contract and then ask for clarifications before signing before the notary.
6. Don't accept blackmail (or links)
We have already said that the decisive factor in the price of the loan is not the interest rate. Among the precautions before signing the mortgage, you should also look at the binding commitments that the bank establishes to lower the differential. Banks offer low spreads in exchange for selling products such as pension plans or mortgage life insurance. These links are not obligatory, and the bank must study the cheapest life insurance proposals presented by the client, without charging for the study, and accept them if the client so wishes.
It is necessary to analyse whether the bank's offer to lower the differential in exchange for contracting linked products with its entity compensates us or not, because we may save a lot of money a year by taking out a separate mortgage life insurance policy. We have cases of up to $7,900 a year in savings for taking out mortgage life insurance directly with an insurance company instead of with the bank. Do your math or enter our penalty calculator. Insurance that, even if the bank increases the differential for removing your life insurance mortgage from its entity, you will save money.
On the other hand, if we have already taken out the mortgage life insurance with the bank, we are always in time to disassociate it throughout the life of the mortgage loan. All you have to do is download the model letter to cancel your insurance with the bank. But first, compare prices in the different companies to see what you get more profitable. Or if you prefer, call us and an expert insurance broker will contact you to see which company interests you the most.
6 Precautions Before Signing the Mortgage and a Tip
Abusive clauses in mortgages are not uncommon. Many court rulings are proving consumers right in claiming mortgage costs and land clauses. Consumer rights are beginning to be respected, there is transparency and good practice. But this is not always the case. If you feel deceived, complain.
You should know that the relationship with the bank can be broken at any time. If there is a cheaper product on the market, which offers us to change our mortgage or our life insurance linked to the mortgage, if we do the math and it works out better, why continue losing money?