If you show interest in buying a home, many mortgage lenders may try getting in touch with you via mortgage leads. But if you don’t want to end up with a mortgage that can prove to be too costly in the long run, you will have to understand what you are getting into.

Here are a few common mortgage traps you need to be aware of:

Feeswith Benefits

All mortgage lenders who get in touch with borrowers through mortgage leads, charge fees. There are the loan set-up fees, the annual fees, the redraw fees, and the like. But sometimes paying up these fees can get you some additional benefits such as reduced interest rate, fee-free increases, and credit cards. Incurring such fees may actually be worth if the benefits seem valuable enough to you. However, you still have to compare the APR (Annual percentage rates) to find out which of the mortgages actually cost the least.

Pre-approvals Not Assessed

Getting pre-approved from your lender can help you get better deals on the properties that you may be interested in. However, you need to make sure such a pre-approval is fully assessed. A fully assessed pre-approval may necessitate credit checks to be completed, savings statements reviewed, and employment history and payslips examined. But once you have it, you can confidently make an offer on a property that you may find acceptable.

Mortgage Insurance Increasing Payments

If the amount that you are borrowing exceeds 80% of the value of your property, you may have to pay up the mortgage insurance, which might end up adding thousands of dollars. You may avoid paying mortgage insurance if you offer to make a higher down payment (about 20% of the purchase value of the property) or go with a higher interest rate. It is always better to explore your options and compare the quotes of many mortgage lenders who may come to you through mortgage leads, before you make your decision.

Refinancing Costs

Sometime down the lane you may come across an excellent mortgage deal that may require you to refinance your existing mortgage. At such a point you don’t want a costly get out.  You may therefore want to go through the fine print of the contract before you sign the deal with the mortgage lender who got in touch with you via mortgage leads. Look for prepayment penalties if any. See if you have to incur any break costs to convert your fixed rate mortgage into a variable rate mortgage.  Compare quotes for discharge fees, set up costs, government charges, and various other costs associated with refinance.

Decision based purely on interest rate

Interest rate should not be your only criteria while choosing between mortgage lenders that contact you through mortgage leads. There are many other things you may have to consider such as access to expertise, customer service, and ease of payment. Ask questions about the kind of transactions that you are likely to do.  Find out what you are getting into and then make your decision.

Credit reports unchecked

Mistakes in credit reports are depressingly common. Any of these mistakes can lead to higher mortgage rate and may be even the rejection of the loan. Ideally you have to check your credit report six months before you apply for a mortgage. This way you will have time to fix errors if any and make the necessary changes to improve your credit score. You can also take certain steps such as reducing your expenses, minimizing the use of your credit card, and paying back your loans on time, to bring up your credit score.

Not exploring your options

A conventional mortgage may not necessarily have to be your only option.  There may be other kinds of loans you might qualify for.  For instance, there is the VA loan that doesn’t require any down payment.  Apart from placing tight restrictions on the amount and type of closing costs, a VA loan eliminates the need to pay mortgage insurance. Many veterans, active military members, and members of reserve units and National Guard, are eligible for VA loans.  Even if you are drowned in debts or have relatively poor credit you can get one of these at really competitive interest rates.

Like buying a house, a mortgage is a life-time decision. You cannot just randomly choose from mortgage lenders who may be ready to offer loans to anyone they can get in touch with, via mortgage leads. Explore your options, read the fine-print, and understand what you are getting into, before making your decision.