Don’t be too drawn in by low interest rates on mortgages if you’ve been looking at price comparison websites. There could be hidden costs associated with taking out a mortgage loan that looks attractive. We encourage you to look more closely at mortgage application costs as well as looking for attractive rates…
Interest rates are generally low, and borrowing is cheap as lenders compete for your business in a hectic property market. While it may be tempting to choose the lowest interest rate you can find, it’s important to think about whether the mortgage deal is right for you and to be aware of any other fees that may negate the saving.
‘When looking for a mortgage, people tend to see the rate as the only thing on a mortgage loan,’ says MB Associates’ Mortgage Adviser James Watson. ‘We call it the “headline rate”, which attracts people, but it’s not always as simple as that.’
James adds: ‘As a broker when we are looking for a mortgage for a client, we will always source the right deal for them. However, that can sometimes be a rate that has the potential to be slightly more expensive, but has fewer fees associated with it.’
While the rate may be slightly higher, you could still make a saving. There are hidden costs you may not know about. ‘When you look at the details and investigate the mortgage that has attracted you a bit more carefully, you might get a rate that’s got £2000 worth of arrangement fees,’ says James. ‘You would have to have a significantly better interest rate or a lot of borrowing to save that amount. Yet a lot of people don’t see past the rate.’
Being aware of the fees you may have to pay when applying for a mortgage can help you keep track of what you may be spending. Here is our guide to fees that may typically be associated with getting a mortgage:
Lender’s Arrangement Fee
This is the fee charged by the lender for the mortgage. It may also be referred to as the product fee. You may be able to add this to your mortgage but this will increase your monthly payments. How much you pay varies – it can be up to £2000 but it’s not always payable.
Booking fee
This is charged when you apply for a mortgage and is not usually refundable, even if your purchase falls through. It tends to range from £99 to £250.
Valuation Fee
This is the cost incurred by the lender of doing a valuation of the property you intend to purchase. The valuation is intended to verify that the property is worth what you intend to pay and is not meant to replace a full property survey. It can cost anywhere from £200 to £1500, depending on the size of the property.
Mortgage Account Fee
This is the fee for the lender setting up an account for your mortgage, along with maintaining the account. It can cost from £100 to £300.
Higher Lending Charge
This doesn’t apply to all mortgages and is typically just for those borrowing higher amounts, as it covers the cost of an insurance policy taken out by the lender in the event of payments being missed. It is usually around 1.5 per cent of the amount you are borrowing.
Broker Fee
A reputable broker will be upfront about any fees you may have to pay in the early stages of your conversation. A typical fee is normally around £500 but this can vary. Even if you pay a handling fee you could still make a saving as a good broker will find you the right mortgage to save you money in the long term. However, pricing models among brokers can vary. Always ask what you’ll have to pay if in doubt.
Seek advice
We would always recommend seeking expert advice from a reputable mortgage broker. They are there to find the right mortgage to suit you and your personal circumstances. So yes, they will try to find you the most attractive rate, but they will also try to ensure that the savings you make don’t get swallowed up in additional costs. We’re here to help with advice on your mortgage. Feel free to contact us.