As if we need more fear-inducing facts at this time of year! Moneyfacts.co.uk has revealed that the true cost of low rate mortgages is frightening.
Beware! Low Mortgage Rates Have Frightening Fees
New research from the website found that too many borrowers opt into low rate products mistakenly believing that they will save them money.
However, the study shows that many would be better off choosing a deal with no arrangement fee over a lower rate deal.
Finance Expert at Moneyfacts, Charlotte Nelson, explains why: “Whilst these low deals look great on paper, they are often compensated by high fees that can scare even the most seasoned borrower.
“With fees on mortgages ranging from nothing all the way up to £2,794, with the average mortgage fee sitting at £939, it is easy to see why it can be a costly mistake to opt for the wrong deal.”
She states that low rate high fee products favour borrowers buying properties at the high end of the market.
She continues: “However, large fees can turn what appears to be a cheap deal into a costly one for the majority.
“For example, by opting for the lowest two-year fixed rate mortgage at 60% LTV with no fee will mean borrowers will be around £1,500 better off a year compared to the lowest option in that sector.
“Arrangement fees allow providers to have greater flexibility in what rate they offer, however, the set up costs are not greatly different between mortgages, so many will question what this is actually for.”
Nelson reports that the size of the arrangement fee is particularly important on two-year fixed rate deals, due to the short-term nature of the product: “Borrowers will have to remortgage relatively soon and could again pay yet another fee.”
She urges borrowers to calculate the true cost of their loan: “There are deals out there with no arrangement fee, so borrowers will have to decide whether they choose a trick or treat when picking a mortgage.”1
Don’t be caught out by high fees, make sure you work out how much the loan will actually cost you.