My friend thinks not. The mortgage is for £98,000 and his current variable rate, is 7.74%, meaning his monthly repayments are about £740.
The two-year fixed deal on offer was 5.74%, which would have meant repayments of £615 a month, £125 less each month or £3,000 saved over the term of the deal.
But once you divide the £1,499 by the two-year period the new loan would run for, the benefits drop to £1,500. In addition, he would have had to pay his broker a fee of £250, a mortgage exit fee of £200, plus legal and survey costs of about £300.
At which point the savings drop to £750 over two years, or £31.50 a month. Now, that's not a negligible sum, but my friend is gambling on the fact that if interest rates fall in the next six to 12 months, so will the cost of fixed deals. Better for him to take some pain now and fix at a better rate a few months down the line, he says.
Of course, he could be wrong in his gamble. But the very fact that he has done his sums tells us something about the new and more complex world of up-front mortgage fees.
In the past two to three years, the initial cost of a mortgage has rocketed from between £300 or £400 to more than £800, according to one survey I saw recently.
Experts say the increased costs have come about because lenders are trying recoup income they lost when they were forced to drop excessive mortgage exit fees earlier this year.
You would think that by levying such sky-high fees, lenders are shooting themselves in the foot. But many play on the fact that if the extra charge is simply loaded onto the total cost of the loan, the overall monthly repayment will be less than before and borrowers are unlikely to notice the effect
They probably won't - until it comes to re-mortgaging in another two years' time and they discover that they have barely repaid any of the original capital owed because of the additional charge they took on. Meanwhile, they have still been paying interest on that added-on fee.
What all this boils down to is that if you are looking for a new mortgage, make sure you take ALL fees into account. If you are unsure, talk to a professional mortgage broker who can offer dispassionate advice.
Finally, make sure you research the entire market thoroughly. The irony of this story is that when using our own site's mortgage comparison tool I found lots of deals that were better than my friend was offered: they were cheaper, the application fee was much less and both free legal and survey costs were thrown in.
I think my mate has made the wrong decision, not just because of the gamble he is taking but because he was looking at the wrong deal in the first place.
If you are in a similar situation, I would encourage you not to make the same mistake.
Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing.
Rate This Article
Click on a star to rate this article.
