Mortgages should be simple: bank lends borrower the money they need, and sets an interest rate which must be paid on that money until it is paid back. If the borrower doesn’t pay the money back when it is due, the bank gets the house.
Easy, right?
Wrong, Mortgages are far more complex than they look and, because of the huge sums involved, picking the wrong deal can prove extremely costly.
Low interest rates can be deceptive and borrowers need to make sure any ‘great deals’ really do add up. Headline interest rates are a guide but they are little more than that. Of course, you should ensure that the interest rate you are paying is competitive; however, a number of other factors can outweigh any seemingly amazing deals. For example, charges.
Various charges are connected to a mortgage; these will vary between providers and between mortgages, and it is very important not to ignore their impact when considering your overall costs. First, almost every provider will charge an arrangement fee, and fixed-rate mortgages in particular, often incur a reservation fee. In addition, a survey usually costs upwards of £300, however some lenders might offer this free. Offset and current account mortgages usually appear more expensive but they offer features that could actually save you money, overpayments without penalty, for example, daily interest recalculation, but you then need to be sure you are going to take advantage of those features or yes, you may find a better option in something simpler.
Finally if the lender gives you back some of your deposit, you will undoubtedly be paying to cover those costs and additional risks elsewhere. Exit penalties are also an important and controversial area. Mortgage providers may charge you a hefty fee for redeeming before the expiry of a pre-set period (usually the term of their discount or fixed rate offer). However, some of these fees might continue beyond any promotional deal and some other lenders charge exit fees regardless of how long you have been with them. A good rule of thumb therefore is, you don’t get something for nothing. A lender has to make a profit and also has to cover the risk of people defaulting. A good mortgage adviser will help you through the maze of different costs and charges – and help make sure you end up with a mortgage that is right for you.
A Fee may be charged for providing mortgage advice full details of any fee will be disclosed prior to completing any work on your behalf.