Borrowers who pick their mortgage either just on rate or just on the associated fees could be making a costly mistake, according to Charcol. The broker is advising borrowers that an important consideration everyone should make when arranging a new loan is the size of their mortgage.
Elliot Nathan, product development manager at Charcol, comments: “Many people who are arranging a new mortgage make the mistake of focusing just on the rate, or just on the up-front fees, without considering the size of their borrowing. In general terms, those with a large mortgage should look for lower rates, while those with smaller loans should be more influenced by fees. That said, there is certainly no definitive answer, so if borrowers are unsure of which way to go, they should seek advice.
“For some time now, we have warned against borrowers taking very low rates that have extended redemption penalties, but it is not just these deals that borrowers need to be wary of. Doing your sums on all types of loan, even if they look competitive at first glance, is very important to ensure you get the very best value from a mortgage.”
Example
The Co-op has a 2-year discount with a rate of 4.94% and a £399 fee. The Woolwich has a deal with a higher rate of 5.19%, but with no fee. Comparing the total cost over 2 years, borrowers with a loan of £120,000 or less would be financially better off taking the higher rate whereas those with a loan greater than this should pay the fee and secure the lower rate.
Nathan continues, “It is vital that borrowers get value for money on what, for most, will be their largest financial commitment. Our experience is that many borrowers are so focused on either up front costs or a low rate that they do not consider all the options open to them.
