The purchase of a new home makes for one of the most essential and biggest financial decisions in the lives of most individuals. Finding the right home is just half the battle won and the other half is understanding how to fund the purchase. For most people, it is not possible to entirely fund the value of the property and taking a mortgage on it is the best option. Mortgages work as lending instruments that are secured by a collateral of the given real estate property. The collateral ensures that the borrower is obligated to pay back the amount during a given period. In the case of inability to pay back the predetermined amount, the lender can foreclose or claim the property in question.

Mortgages are taken by businesses as well as individuals when making large estate purchases. A mortgage repayment comprises of two components that include interest and principal amount. The interest is an additional amount that is calculated based on the principal. During the term of the mortgage, monthly installments must be paid by the borrower. Not all mortgage loans are created equal and there are different kinds of charges or penalties to beware of.  Here are some of the types of fees to understand:

• Penalty on prepayment – A mortgage is prepaid when the predetermined amount is paid off ahead of the schedule. While prepayments help settle the mortgage amount faster, they are some institutes that lay down restrictions against the same. Certain banks may not allow prepayment whereas some may levy extra charges for the same.
• Service charges – It is imperative to review the types of service charges before signing up on the mortgage agreement. There may be a cost for the services rendered during the process of getting the mortgage and the term too. The service charges are laid down based on the type that the borrower wishes to avail, and one can opt out of those that are not required. In case of optional services, a few can be canceled out.
• Discharge and administration fees – In the case of exiting one mortgage agreement and renewing an agreement with another lender, there is a need for administrative formality. This work can call for charges and one must understand these charges well when considering a change in mortgage lenders.
• Penalty on late payments – In case of late payments, mortgage lenders do charge a penalty. The amount applied as a penalty depends on the lender and their policies. Also, repeated late payments can lead to a bad record and the lender may abstain from renewing the mortgage agreement at the term end. Thus, it essential to understand the factors that can trigger a late penalty and the total amount that must be paid in the form of a penalty.
• Mortgage porting fee – Mortgage lenders typically allow the borrower to retain the same contract and amount while transferring the same to a new home. This kind of mortgage portability is allowed by most lenders but in case the agreement does not include the same, then an added fee will be charged. The given charge must be reviewed in case of plans for mortgage portability.