Some Loan writers will do anything to get your business. Watch out for these traps:
1. The Honeymoon Rate
You will be instantly attracted by the interest rate offered for the first year of your loan term. Unfortunately, the honeymoon period does not last. The rate will usually revert to a much higher rate after the first year. There are often heavy penalties if you wish to leave the relationship.
2. The Fixed Rate Loan
If you opt for a Fixed Rate Loan you may be penalised for making higher repayments or paying it off in lump sums. Substantial penalties may also apply if you pay off your loan during the fixed rate term. However Fixed Rates may protect you against rate movements.
3. The Split Loan
If you split your loan or have it part fixed and part variable, some Lenders may charge you set-up fees, account fees and discharge fees on both portions of the loan.
4. Exit Costs
When you pay out a loan, watch for the exit costs. A Lender may charge you a Deferred Establishment Fee, legal and preparation fees to discharge your mortgage, and some even sneak in a service fee.
5. Upfront Costs
Some Lenders charge you an ‘all up’ establishment fee, which includes the Banks’ legal fees, an application and a valuation fee. Others add 'security costs’ as an upfront fee and then claim that they provide no on-going fees!
6. The Wrong Loan
A Line Of Credit Loan may be the wrong one for you. It is like a very large credit card and if you are not disciplined you may find yourself in financial difficulty. An Offset Mortgage or a Basic Loan may suit you better.
7. Paying for “The Bells and Whistles Loan”
Yes, you do pay for what you get. Often the more flexibility provided, the higher the interest rate and cost to you. Do you really need all these additional features?
8. The Package Deal
Some lenders offer banking packages and discounts, which may reduce the cost of your everyday financial needs or provide significant discounts to certain groups. These packages usually have large annual fees, therefore need to be considered carefully.
9. Loyalty to a Current Lender
New borrowers may get a better deal than you. It’s also surprising that your current Lender suddenly offers a better rate once you mention you are leaving them – why didn’t they offer that to you before?
10. Not Seeking Professional Advice
It is important to seek professional advice that takes into account your particular situation and needs that benefit you rather than the Lender.
Darryl Simms is the Director of Access Loans