Be Aware - Mortgage Fees Are Spiralling Out Of Control
September 2005
Mortgage fees such as 'exit fees' and 'arrangement fees' are getting to be so expensive many people are now realising that it doesn't make financial sense to remortgage.
By the time you've paid all the relevant fees the money saved is often minuscule. Of course, you have to understand what the fees are otherwise the clever marketing by the mortgage lenders will catch you out. To sum up, the savings you can get on your monthly mortgage payment are normally swallowed by via the charges levied.
Why Fees Have Gone Up
- Lenders are trying to attract new customers by offering very competitive short-term deals
- Borrowers therefore look to remortgage when the special offers expire (such as a 2 year fixed rate etc)
- The lenders used to make most of the profits via the generally expensive standard variable rate (SVR) but with less people paying this rate the lenders are having to scrub around for other ways to make their profits
- Hence fees are going through the roof
How Much Have Fees Gone Up
- Arrangements fees have doubled over the last 3 years (up 40% in the last year) - Average fee is now nearly £500
- Exit fees have increased even more sharply (these used to be no more than £80 but can now be as high as £300)
- These high fees allow the lenders to offer 'best buy' mortgage rates etc, they have therefore created a vicious circle
- An exit fee is charged when you come off the original fixed deal (say after 2 years) and don't want to go onto the lenders SVR so look to remortgage with a different lender
- Also be aware for other charges such as a 'deed release' fees
Important - Take ALL Fees & Payments Into Consideration
In the old days it was easy to compare different mortgages from different lenders, but not anymore.
Now it's CRITICAL to take all fees, charges and the traditional monthly payments into account. This is the only way to compare like with like and see if the mortgage deal you're considering is actually financially to your advantage.
However, Exit fees will still be a problem because the lenders can move these in the future. An exit fee which today is £200 could become £400 or higher 2-5 years in the future. Unfortunately there is nothing you can do about this apart from perhaps dealing with a mortgage lender that has tended to play fair with its clients in the past.
For example, right now the Alliance & Leicester has the highest Exit fee (A&L calls this a 'redemption administration charge') of £295 which a year ago was £195, a 51% increase. No wonder many A&L clients are fuming.
But it's not actually fair to single A&L out for criticism because many lenders are also behaving in this fashion.
Summary
Despite these charges it is normally a good financial move for borrowers on SVR to remortgage, just make sure you do your homework on exactly what fees are levied and charged, and get this clearly labelled in writing.
As a rule of thumb if you have a large mortgage, remortgaging is a good move even with large fees involved. But for those with a small mortgage be far more aware on the total costs of remortgaging including all the fees/charges.
See Also
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