Pitfalls in mortgage contracts

August 18, 2013

There are several important restrictions and hazards to be aware of when getting a mortgage, including but not limited to:

  • High penalties (beware of bank penalty calculations)
  • Unusual fees
  • Restrictions on refinancing without penalty
  • Restrictions on refinancing at all (before the term is up)
  • Restrictions on porting your mortgage to a new home without penalty
  • High blend rates (i.e., the rate you get when increasing your mortgage)
  • High conversion rates (i.e., the rate you get when locking in a variable to a fixed rate)
  • Monthly compounding (which is more expensive than semi-annual compounding)
  • Prepayment limits (some lenders let you make lump-sum prepayments only once per year, or not at all!)
  • Large clawbacks on cash-back mortgages that are broken early

Be aware of these limitations because they can cost far more than a lower rate saves you.