Avoiding Penalties

Like choosing your house, choosing your mortgage is all about the bigger picture. Okay, so it looks good now, but what happens when the kids move in? Alright, so it sounds attractive now, but what happens when the interest rates rise? Provided you can mitigate for kids and interest rates, you shouldn’t have any trouble in picking the right house and picking the right mortgage. And provided you use our handy guide you’ll quickly learn how to avoid mortgage costs and penalties.

The be all and end all of good mortgage management is this: know your mortgage! Easier said than done, but there are obvious ways in which to avoid some less obvious penalties. For a start, be aware of what your mortgage repayment plan actually entails. For example, if you’ve chosen a fixed repayment scheme, are you sure that it’s going to stay fixed? Or is it going to stay fixed for an initial period, before it suddenly reverts to the lender’s standard variable rate? That might be good, that might be bad, but it’s not necessarily what you thought you were going to get, so make sure you make allowances for it – and make sure you budget for it! The lesson here is that, in very many cases, whatever you sign up for is seen by lenders as a sort of special introductory offer, not an ongoing feature. Rates that seem appealing at the commencement of your repayment plan may jump, vary and otherwise mislead you within months or years of taking on the scheme. Don’t let a sudden dent in your bank balance or an expensive foray into your overdraft find you out and find you wanting.

How long are you tied into your existing mortgage scheme? You might be offered all the benefits in the world for signing up, but if you’re going to be tied in to an increasingly unfavourable scheme, the only thing you’ll be investing in is the law of diminishing returns! The only way out of a bad mortgage deal is invariably to pay for the privilege. ‘Redemption charges’ as they’re known are costly – and will at the very least undo all the savings you might have made from the sign up scheme. So be wary. Take on all the benefits you can get, but never at the expense of flexibility. Failing that; be prepared to compromise. If the package is worthwhile in the short term, take the quickest opt out period you can find. Even a five year scheme is better than a ‘lifetime’ commitment.

This applies equally to those of you who might be considering paying off your mortgage early – or in bigger increments than have been laid out by the terms of the mortgage agreement. If in either case, this incurs a redemption penalty, then you’ve got the wrong mortgage.

Perhaps the biggest mortgage cost avoidance you can take is to sign up to a mortgage protection scheme. For a small monthly fee you’ll enjoy all the protection of having your monthly mortgage payments covered, in the event of a sudden loss of earnings brought about by illness, injury or unemployment. It’s no different from any other insurance scheme in as much as you may not even need to use it – and let’s hope you don’t. But, if you do need it, you’ll be ever so glad you’ve got it! Only you can decide if mortgage protection schemes merit the cost for your peace of mind.

Finally, does it make the government grade? The Government CAT (Charges Access Terms) standard is applied to mortgage schemes that are free of hidden terms and charges, making it a safe mortgage supplier. Good indicator though it is, don’t be fooled into thinking that this automatically makes for a best value mortgage – make sure transparency doesn’t come at the cost of true value. Equally, it doesn’t mean that non CAT mortgages are of inferior value – nor does it mean that they are unsafe. Indeed, many mortgage applicants will forego CAT accreditation in their efforts to find a bespoke mortgage, irrespective of its credentials.

Once you’ve mastered the fundamentals you probably won’t be content to simply avoid mortgage costs and penalties; you’ll want to start making a positive impact on your mortgage. Good mortgage management means keeping an eye on interest rates and trends; it means managing your mortgage for genuine long term gain.