Budget mortgage, profit mortgage, basis mortgage, bonus mortgage ... Many names for the cheapest mortgages from various lenders. Unfortunately, these mortgages do not always work out well! Read here why there should at least be an alarm bell sounding if you come across one of these terms in your mortgage quotation.
Anyone comparing various types of mortgage would be well advised to consider the conditions as well as the price. After all, a mortgage has an average term of around 30 years and therefore it is highly likely that your situation will change during the term. If you move house for instance, good mortgage conditions are a must. So do not look only at the interest rate! The possibility of taking your mortgage with you if you move house are at least as important.
Mortgage conditions affect various circumstances. Such as:
- Withdrawing extra cash from your mortgage
- Early repayment
- Penalty if you sell your home
- Validity term of the quotation
- Mortgage portability option
With a budget mortgage or similar you pay a very low interest rate, but the conditions are more limiting than if you choose a different mortgage type. Examples are:
- Contrary to other mortgage types, it is not possible to extend the term of the validity of a quotation for a budget mortgage. This could have consequences if you are buying a new-build home.
- If you have signed the quotation for the mortgage but then decide not to take it up, you will pay 1% of the loan applied for in fees.
- You always pay the interest as stated in the quotation, also if this is higher or lower on the date of delivery of your home.
- If you move house, you can decide to repay your mortgage to the lender. Please note: if the current interest rate is lower than the rate at which you concluded your mortgage, the bank will charge 3% of the mortgage principal for missed income. This 'penalty on sale' does not apply if you decide to continue your new mortgage with the same lender.
- Only few budget mortgages also have a mortgage portability option. This means that when you move, the remaining mortgage principal is included in your new mortgage. You pay the old rate of interest on this part until the fixed-interest period expires.
In other words, a budget mortgage has several features that are not noticed if people compare mortgages only on the basis of the interest rate. You may find that you get what you pay for if you blindly take up a mortgage on the basis of an attractively priced interest rate. While a budget mortgage is not necessarily a poor choice, it is important that you are properly informed regarding both the interest rate and the associated conditions at all times.
If you would like to know more about the advantages and disadvantages of the cheapest mortgages, as a financial adviser I would be pleased to go through the various options with you. Call for an appointment on 020 - 575 33 20 or e-mail us at firstname.lastname@example.org.