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Mortgage rates war: Watch out for fees when looking for your fix

If you’ve been reading the papers, you can’t have missed mortgage provider after mortgage provider advertising their lowest ever discount and fixed deals, or brand new low rate long term fixes.

With some mortgage rates at their lowest ever level, you might be tempted to buy or remortgage – but high fees can make things trickier than just selecting the lowest interest rate.

Review your mortgage

It’s worth reviewing your mortgage regularly to see if you can save by switching, and this could be a great time to see what is on offer.

The first step is to look at some comparison tables and see what’s out there. There’s a good chance you’ll find a great deal, but it depends on your personal situation. We’d always recommend getting advice from someone qualified who can explain the options available to you. You’ll also have some protection if the advice or recommendation later turns out to be unsuitable.

 

The main rate isn’t the whole story

The lowest rate is the best deal isn’t it? Well, possibly not.  There are many things which affect the total amount you pay back over time, such as the size of your deposit and the length of the deal.

But more significant with these bargain rates are the additional fees.

Many providers will add an arrangement or completion fee to a mortgage. Some call it an application fee or a booking fee, or a combination. Whatever the name, some providers use a high fee to compensate for really low fixed and discounted rates.

A quick look at some of the current deals on offer showed dozens of two year fixes at less than 2%. Yet fees range from nothing to well over £2,000. So it might be that a mortgage with a higher rate but lower fee actually costs you less overall.

One way to help you understand how fees impact what you pay is to look for the total cost of comparison, measured as APR (Annual Percentage Rate). This takes the initial fees into account to help you compare the different deals.

APR isn’t perfect

APR is great for tracker mortgages, but it isn’t perfect. If your mortgage is for 25 years and the fix or discount is for two, it will calculate the average rate with the remaining 23 years on the provider’s Standard Variable Rate (SVR).

But if like many borrowers you’re likely to get another fix or switch at the end of your deal, you wouldn’t ever pay that higher rate. This makes the combined APR slightly misleading. APR also doesn’t include all fees you might have to pay, which also vary from lender to lender.

It’s best to treat the mortgage APR as just a guide. A more accurate way to calculate the true cost is to work out the total you’d pay for the fixed or discounted period.

Not long left on your mortgage?

If you’re remortgaging, a new rate might be appealing but check if there are exit fees on your current deal and arrangement fees on the new one. If you’ve not many years left, switching could actually make it more expensive. 

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  • John Edward / 20 February 2015

    Your original text

    A more accurate way to calculate the true cost is to work out the total you’d pay for the fixed or discounted period.

    Change to the text below as it makes it clearer and easier for people to understand what you are tryiung to say

    A more accurate way to calculate the true cost is to work out the total you’d pay for the fixed or discounted period taking into account fees and mortgage payments.

  • Lee Wells / 13 February 2015

    Very good and informative