Things To Watch Out For
- Mortgage fees. The lender may charge
up-front loan or processing fees, to cover the various
costs of setting the mortgage up. You need to check
these fees carefully, and try to get an estimate as
soon as possible, so that it gives you time to evaluate
the total mortgage package, and shop around if you
are not happy.
- Prepayment. Ideally, you want to
be free to pay off the mortgage (all or in part) at
any time before its due date. If you were to come
into some money, you would quite likely wish to offer
an extra payment, or maybe pay the total amount, but
unfortunately the majority of the lenders are likely
to charge a redemption penalty in the first 3 to 5
years of the mortgage. But after that initial period,
you should make sure that your mortgage agreement
gives you this flexibility and try to avoid a prepayment
penalty for paying off the mortgage or part of the
mortgage early.
- Grace period. Try to get a grace
period for any payments. For example, the monthly
payments may come due on the first day of each month,
but they won't be deemed late until the fifth day
of the month.
- Sale and leaseback. An alternative
to mortgaging a property is to enter a sale and leaseback.
In this transaction, you would sell the property to
a buyer, who would immediately lease the property
back to you. In this situation the main advantage
is that the buyer would be required to find the financing
for the purchase. However you have sold your ownership
of the property and you would not share in its appreciation.
- Legal and Professional Fees. Before
you finish the loan and the property becomes yours,
you will incur several closing costs above and beyond
the cost of the property and fees arranging for the
mortgage. Common expenses to be paid at closing are
title insurance, the site survey fee and various fees
for preparing the legal documents.
Also check out our Disadvantages
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Commercial
Mortgages Guide
