While interest rates grab the headlines lesser-known upfront fees charged by lenders are also crucial to finding a good deal. These costs come on top of the interest rate borrowers face on some mortgage products, making it hard to compare value.
Which mortgages charge fees?
Fees on fixed-rate mortgages currently range from zero to £2,999, while the highest additional charge for a tracker product is currently a whopping £3,999 set by Halifax. The average fee charged by lenders tends to be around the £999 mark.
Which? analysis of the fixed-term 90% and 95% products currently on offer reveals that just over half of deals come with no extra costs. Meanwhile, only three in 10 products at lower LTV amounts (ranging from 60% to 75%) come with no additional fees.
Find out more:Low rates vs fee-free mortgage deals
When researching mortgage products at face value, it can be hard to determine which offers the best deal.
We've looked at how the leading fee-free 95% loan-to-value mortgage compares against products with the lowest interest rates with differing fee levels.
We've crunched the numbers based on how much you'd pay over a two-year fix on a £200,000 mortgage set to a 25-year term.
The table reveals the cost of paying the fee upfront and adding it to the mortgage as well as the total paid over two years in each scenario.
The low-rate deal from Cambridge Building Society which comes with a £599 fee has the lowest cost over two years, but Cumberland's deal rather than the next-best rate from Halifax has the next-lowest cost over the period.
Is a fee-free deal better?
Should I add the fee to my mortgage?
Your lender might allow you to add the fee to your mortgage, but beware this will increase the amount you're borrowing and therefore what you pay interest on. It also might not always be possible if you are at the limit of what you can borrow.
Find out more:How to compare mortgage deals
1. Compare the overall cost of the deal
It's not all about the initial rate, and you should look at the full cost of the deal before making a decision.
When you view mortgages on a lender's website or comparison site, you'll usually see a column called 'APRC', which stands for 'annual percentage rate of change'.
The APRC gives an indication of the overall rate you'd pay if you stayed with the deal for the full term (for example 25 or 30 years).
2. Don't get drawn in by added incentives
As well as offering fee-free deals, lenders use other incentives, such as no legal fees, no valuation fees, or cashback to entice borrowers.
These can be worthwhile, but additional extras shouldn't be seen as a crucial element.
For example, cashback offers don't tend to make a dramatic difference in the scheme of things, as most lenders will only offer relatively modest amounts such as £250 or £500.
3. Weigh up the length of the fix
This is currently a big talking point and one which plays on the mind of any upcoming, or existing mortgage holders who need to remortgage.
The average rate on a two-year fix is currently 6.75%, while a five-year fix comes in at 6.27%. Despite costing more, demand is greater for two-year terms as borrowers are hopeful they'll be able to refinance onto a cheaper deal in 2025.
For those in two minds, three-year fixes are also available. Longer 10-year terms are also on the market for those who don't want the hassle of remortgaging in the next decade.
4. Find the right lender
There are dozens of mortgage lenders out there, and some offer significantly better deals and customer service than others.
5. Take advice from a mortgage broker
In such an uncertain time, it makes sense to take advice from a whole-of-market mortgage broker, who can assess all of the deals on the market to find the right one for you.
source https://www.which.co.uk/news/article/six-in-10-mortgages-charge-fees-how-to-find-a-good-deal-a3Nra1m7TKZm