Beware of mortgage sharks! |
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Published
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Thu, 10 Mar 2005 01:00
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Mortgage lenders or sharks as they are generally known are still eating into unwary consumers pockets through unfair means, reports consumer watchdog Which?.
The group found out that there are many illegal ways by which mortgage lenders try and trap innocent consumers. So it becomes more than important for consumers to stay clear of deals that would later turn headaches. But if you already have a mortgage then check to see if you are not one of them fallen into money lenders trap. If no, it’s time for you to re-mortgage. Here are some tricks these big lenders play.
| MIG Matters : Today, almost all the banks and building societies charge the Mortgage Indemnity Guarantee (MIG) for mortgage exceeding 90 per cent on the value of the house being bought. The money raised by the lending institution through MIG is used for buying insurance policy so that they are protected in case the house has to be re-possessed or if the borrower can’t raise enough money after selling the house. It should also be noted that MIG cost a bomb and add hundreds of pounds onto the cost of buying a home. For instance, Which? found out that the Royal Bank of Scotland charges £1,790 for taking out a 95 per cent mortgage on a house worth £100,000.
Interest Ills : Many lenders charge interest on yearly basis, instead of daily or monthly basis, thereby forcing consumers to pay interest which actually they no longer owe. Bradford & Bingley is one such financial intuition that works on this principle for all its products. For instance, Which? found out that based on a 25-year £100,000 mortgage at 5.8 per cent interest, a borrower would be paying almost £90 a year.
Month Mania : Big lenders charge interest till the month-end, even if it’s paid-off in the beginning of the month. For instance, Which? found out that if you repay your mortgage on Dec. 2 you would be charged interest up to the Dec. 31.
Product Related Charges : The lump sum amount that the lenders accept varies, and with fixed-term and discount mortgages the borrower may have to face product related charges for making lump sum repayments. Some lenders do not give allowance on interest payments if the amount is paid in lump sum.
Mandatory Products : Many lenders insist on taking “add-on” products like household insurance, life assurance or accident, sickness and unemployment cover at the time of buying mortgage. But beware; most policies from lenders will cost you as much as 30 per cent or 40 per cent more than those available in the market.
Base Rate Dilemma : When base interest rate is cut by the Bank of England, some lenders take their own sweet time to reduce the rates and pass on the savings. Some may even half their rate to the actual cut in base rates, thereby pocketing the difference.
Early Repayment Charges : If you’re planning to repay your mortgage before time, you may be charged penalties which are known as early repayment charges or redemption penalties, and they can run into several thousand pounds.
So make sure you check these points before applying for a mortgage as there are plenty of lenders out there willing to give you a better deal.
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