If you’re like most borrowers you just want the best mortgage rate. After all, aren’t the other terms the same? Wrong. Banks and other mortgage lenders are businesses looking to maximize their profits and although there are regulations on stating fixed mortgage rates, the other terms are fair game and buyer beware.
One example of a hidden fee is the reinvestment fee. This is similar to a restocking fee charged by a retailer on a returned item. Only in the case of a mortgage the fee is charged on early pay-out. You were expecting the penalty and maybe even saw the discharge fee coming, but not many of us are prepared for the reinvestment fee. This fee ranges from $300 to $500 and is charged by a small number of lenders, and don’t think the big banks are immune.
Another example of a hidden term is the compounding period on variable mortgage rates. This is regulated to be semi-annually on fixed mortgage rates, but not so on variable mortgage rates. Beware the lenders that compound monthly, it will cost you more in the long run and the trick is the mortgage rate may actually appear lower.
Not so much a hidden fee as a procedural black hole is the calculation of an interest differential (IRD) penalty. The ambiguity lies in determining the current mortgage rate. Banks are notorious at posting high mortgage rates and then discounting to keep their customers. This gives them a large range of possible mortgages rates to calculate your penalty. The banking regulator had to step in with some guidelines to keep the banks from over charging its customers.
The bottom line is that you should understand your banks policies before signing on the dotted line. A lower mortgage looks great on the surface, but the hidden fees may have you paying more in the long run.