Early Payout Penalties and Delayed Establishment Fees

Before accepting an offer of a mortgage, whether it is for your own home or investment, make sure you ask to see in writing what the early payout penalties are or if there are any delayed establishment fees.

A client of ours came to us for refinance and we discovered that for him to pay out his existing mortgage there was a fee of 1.75% of the original loan amount.

When we told him he insisted that his previous broker had guaranteed him that there were no early payout penalties. On further investigation we discovered that the lender had called it a 'delayed establishment fee'.

On a $900,000 loan that covered 3 of his investment properties, it cost him just under $16,000 in fees to pay out the loan.

Whilst the client could have borrowed the money anywhere, the broker he used encouraged him to use a non-conforming lender as the broker received a much higher commission.

We are not saying don't accept a loan where there are fees, just make sure you know what they are. Most of the main lenders will charge you, but it will probably be as little as $700 to cover administrative costs.