Costs of mortgage fees could counteract benefits of fixed rate mortgages
Experts are warning any consumers that are thinking about taking out a set term, fixed rate mortgage deal to ensure that they look into the application fee that is being charged by the lender before assuming that they have found themselves a good deal and rushing in.
Industry professionals claim that in many cases the benefits of having a set period at a fixed rate – which can help borrowers to avoid the pinch felt with interest rate rises as well as making it easier for them to budget for their repayments – is counteracted because of the extortionate application fees charged by some lenders.
According to experts from Moneysupermarket, some mortgage deals can look very attractive at first and consumers may think that the competitive rate of interest charged on a particular deal will save them money. However, once the sky high application fee for the mortgage has been added into the equation some consumers could find that these ‘bargain’ deals could actually cost them more money in the long run.
Moneysupermarket gave an example using a £150,000 mortgage from Northern Rock, which was taken out over a two year fixed rate term before reverting back to variable rate. The fixed rate term would actually be spent paying off the application fee of over £5000 rather than making any significant payments towards the actual mortgage loan itself.
Experts have urged consumers to ensure that they look at the bigger picture when taking out a fixed rate mortgage, and taking into account the application fee as well as the interest rate and other factors. Consumers are also urged to pay off the application fee as early as possible or even pay it upfront.
One official stated: "I would urge anyone who can afford to do so to pay the application fee up front, or as quickly as possible within the product terms by making overpayments. Borrowers need to remember that not only will the fee take time to pay off, but it will also be subject to interest."
Tom Smith
21st March 2007
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