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A recent report has discovered that the application fees associated with mortgage and remortgage products have risen considerably over the last year and a half. So, if you are considering a remortgage, it is more important than ever that you fully understand the costs incurred as part of the process and that you take these fees into account when switching lender.
Mortgage Strategy recently published the findings of research by a leading comparison website. The data showed that between September 2009 and March 2011 the average application fee for a mortgage or remortgage deal increased by just under £100.
The magazine attributes the increase in application fees to lenders trying to retain high profits from home loans whilst offering low headline rates of interest to attract borrowers. Over the last eighteen months, fixed rate fees on mortgage products increased by an average of £97, equivalent to a 14 per cent rise. Tracker rate remortgage and mortgage deals saw application fees rise by 15 per cent, or £118.
When comparing remortgages it is important to take into account both the headline interest rate and the application and other fees associated with the deal. On some occasions it is actually beneficial for you to pay a higher fixed or tracker interest rate if such a product comes with a lower booking or arrangement fee.
Let’s look at this example; on a £150,000 ‘interest only’ mortgage, you are more likely to benefit if you take out a two year fixed rate deal at 5 per cent without fees than if you took out a 4.75 per cent fixed rate mortgage with a £999 fee. Throughout the life of the deal the lower interest rate would save you £750 over the two years but the £999 application fee negates these savings.
Remortgages can also often attract a number of other fees as well as application or arrangement fees. For example, you may have to pay some valuation or legal fees or an ‘early repayment charge’ to your current lender. Any savings you make by switching your mortgage could be outweighed by these other charges.
Many mortgage and financial experts have urged remortgage customers to examine the total costs incurred in a remortgage deal before committing. The Daily Mail suggests that for a five year fixed rate remortgage you should total up both your fees and charges and your total repayments over the five years. Only then can you compare the total costs of a number of remortgage deals.
It has been a difficult market place over the past few years for lenders in the economic climate that we as a country faced, and so it is reported that the lenders are now slowly increasing their fees in order to keep their profits at a level that will sustain the business.
£850 is now the average arrangement fee for a mortgage or remortgage product according to figures from the Daily Mail. The newspaper also found that the average booking fee (generally payable at the start of the mortgage process when an application is submitted) is now around £300.
The most important thing is to ensure that you know what you’re paying. Don’t enter into anything unless you are fully aware of all of the costs, and make sure that you compare deals to ensure you’re getting a competitive rate and not paying over the odds over a period of time.
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September 18th, 2011 at 8:08 pm
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