When we shop, price is usually a core purchasing factor. Never is this more true than when searching for our first or subsequent mortgage deal. As such, people tend to gravitate towards mortgage products with the lowest interest rate.
However, of late, some deals have been emerging that seem tantalising at first glance, but delve into the small print, and you find they are far from the most cost-effective option.
What’s happening here?
In short, some lenders use extortionately high fees to make a products interest-rate look more attractive. By doing this, they ensure that they rise up the comparison tables.
So, what can you do to avoid this pitfall?
Well, what you should be looking at is which rate saves you the most money overall, once you factor in all of the other charges! This will give you the true cost of a product over a fixed period.
First off, you need to make sure that you’re calculating the total fee of the product. Mortgage deals come with additional fees that vary between lenders, and can include things such as product fees,
administrative account fees, legal fees, and valuation fees. This can typically range from anywhere between £1000 and £2000.
Then, there is the term of the product.
The most popular choices here are mortgages that fit within the two to five year fixed window. Often, what people miss is that the length of term can vary between lenders. For example, one lender, my offer a two-year fix product over 30 months instead of the usual 24. It’s for reasons like this that it’s important to work out your total costs based on the products full term.
Lastly, there are broker fees. Most brokers charge an upfront fee of anywhere between £295 and £3000. Then, there are others that don’t take an upfront fee, choosing instead to rely on the sizeable commissions paid to them by the lenders. The issue, here is that you really need to know you can trust the intermediary/ mortgage broker that you’re working with (The old adage is true. “a good mechanic who can find?!”), in order that there isn’t the remotest chance they are putting a products incentives ahead of your best interests. An ethical broker should find you the very best and most effective product for your needs, otherwise politely walk away, regardless of the fees touted by their lending panel.
If your in the midst of applying for a mortgage, don’t forget that you can find a clear outline of all mortgage related costs by taking a careful look at the mortgage illustration document, which should be provided to you upon pre-application, and if you have any questions, we’d love to here from you at The Northants Post.
Happy hunting,
James.