Are there any Home Loan mortgage traps?

Are there any Home Loan mortgage traps? The sad but obvious answer is a rotund yes. There are many mistakes, traps and downright unscrupulous practices you can bump in and fall in when your are choosing your home loan or mortgage. Knowing what to look for and checking before signing are simple but vital advice for the prospective home owner. As buying a home is probably going to be the most expensive purchase in your life, spending some time researching your financing options is a must.
The main traps you can fall in are the following. 1) The interest trap. 2) The tenure trap. 3)The insurance trap.
The interest trap. The interest trap is as simple as you get. If you are not careful you can pay top dollar over and above the going rate. This trap is often focused on those that have bad or poor credit score. They are scared or embarrassed and will pay next to anything to get their car loan approved. However you must remember that no matter how bad your credit score is you have options and should shop around.

Another trap included in the interest trap is the offering of Fixed interest mortgages. Fixed interest mortgages in themselves are not a trap and depending on your circumstances can even be the smart choice. Having said that banks love to offer these mortgages or loans with fixed interest as their profit margin is much larger. Fixed interest loans are dearer because they are guaranteed to never change throughout the tenure of the loan. This allows the owner to plan out their budget and not have to worry about sudden changes in the interest rate. Interest rates change constantly sometimes a few times in the same day. When your bank offers you a fixed interest rate they are running a risk, the interest might rise dramatically and they could end up stuck with your “cheap” loan. In order to protect themselves from this Banks will increase the fixed interest. Sometimes the trap is the raise the interest too much and cash in on the fear of the buyer of interest rates changing.

The tenure trap. The tenure trap is simple, get the customer to take on a loan that is as long as possible. You might think banks are doing you a favor by extending the length or tenure of the loan to maybe up to 30 years. This exercise will have the advantage of dropping your monthly installments and allow you to buy a home you would otherwise be unable to buy. Nevertheless the length of your loan is the one factor that could increase most dramatically the real price of your new home. The advice is to keep your tenure as low as possible within your monthly budget restrictions.

The insurance trap. This is a trap I myself fell in. When you are buying a home you are so in the habit of paying for everything you kind of get used to saying yes to expensive purchases. Banks know this and will offer you insurance policies to protect your home that you don’t need or can get cheaper elsewhere. Be smart, read the fine print and enjoy your new home.