Around six in 10 fixed-rate mortgages come with upfront fees, which in some cases add thousands of pounds to the overall cost of the deal.
Read on to learn more about how mortgage fees work, and for advice on comparing mortgages.
What are mortgage fees?
Mortgages are often listed in order of their headline interest rates but it's vital that you factor in the fees, too.
These are sometimes listed as 'arrangement', 'booking', 'product' or 'completion' fees – all different names for the same thing.
It's common for upfront fees to be around £1,000, but there are deals currently on the market with fees as high as £2,995.
Most banks charge their fee as a flat sum, but a handful of lenders instead charge a percentage of the amount borrowed, for example 0.5% or 1% – which can add up to a significant amount.
Find out more:Do the cheapest deals have bigger fees?
It's not uncommon for 'cheap' market-leading deals to come with high upfront fees. It all depends on the current property market and the customers the lender is targeting.
Lower interest rates mean smaller profit margins, and upfront fees are one way that lenders can redress the balance.
How the cheapest fee-free deals compare
The lowest rate currently available is 4.12%, and this deal charges an upfront fee of £899. The cheapest fee-free deal has a slightly higher interest rate of 4.28%.
The fee-free deal would cost £20 a month more in repayments, or £480 more over the two-year fixed term.
However, once you factor in the £899 fee, the fee-free deal actually works out £347 cheaper overall.
Find out more:Are fee-free deals always better value?
It all depends on the individual scenario.
For example, if you're borrowing a much larger sum, you might find that the extra interest you'll need to pay on a fee-free deal over two years outweighs an upfront fee.
In some cases, the difference between the overall costs will be negligible, so the decision will come down to your individual preferences.
The good news is that lenders are increasingly offering a greater choice of fee structures, making it easier to directly compare costs.
For example, Yorkshire Building Society, a Which? Recommended Provider, offers three fee options on its mortgage range: on a 90% mortgage, borrowers can choose a rate of 4.99% (£1,495 fee), 5.24% (£495 fee), or 5.34% (no fee).
Find out more:Should I add the fee to my mortgage?
Most lenders will allow you to add an upfront fee to your mortgage, but think carefully before doing this.
The benefit of adding the fee is that you’ll be able to get the lowest-rate deal without needing to fork out a chunk of cash at an expensive time.
However, the major drawback is that you’ll have to pay interest on the fee alongside the rest of your borrowing, meaning it’ll cost you more in the long run.
With this in mind, it's prudent to either pay the fee up front, or choose a fee-free deal.
Which other incentives should I consider?
Mortgages are more complex than simply fees and rates. You might also see these perks advertised:
Cashback Free valuation Free legals Find out more:Advice on comparing mortgages
Consider taking advice from a broker Be aware of early repayment charger Choose a lender that offers great customer serviceWhich? Limited is registered in England and Wales to 2 Marylebone Road, London NW1 4DF, company number 00677665 and is an Introducer Appointed Representative of the following: 1. Inspop.com Ltd for the introduction of non-investment motor, home, travel and pet insurance products (FRN 610689). Inspop.com Ltd is authorised and regulated by the Financial Conduct Authority (FCA) to provide advice and arrange non-investment motor, home, travel and pet insurance products (FRN310635) and is registered in England and Wales to Greyfriars House, Greyfriars Road, Cardiff, South Wales, CF10 3AL, company number 03857130. Confused.com is a trading name of Inspop.com Ltd. 2. LifeSearch Partners Limited (FRN 656479), for the introduction of Pure Protection Contracts, who are authorised and regulated by the FCA to provide advice and arrange Pure Protection Contracts. LifeSearch Partners Ltd is registered in England and Wales to 3000a Parkway, Whiteley, Hampshire, PO15 7FX, company number 03412386. 3.Optimise Media Limited (FRN 313408), for the introduction of HSBC Group, who are authorised and regulated by the Financial Conduct Authority to provide credit brokering activity. Optimise Media is registered in England and Wales to Exchange Street Buildings, 35-37 Exchange Street, Norwich, England, NR2 1DP and company number 04455319. We do not make, nor do we seek to make, any recommendations or personalised advice on financial products or services that are regulated by the FCA, as we’re not regulated or authorised by the FCA to advise you in this way. In some cases, however, we have included links to regulated brands or providers with whom we have a commercial relationship and, if you choose to, you can buy a product from our commercial partners. If you go ahead and buy a product using our link, we will receive a commission to help fund our not-for-profit mission and our campaigns work as a champion for the UK consumer. Please note that a link alone does not constitute an endorsement by Which?.
source https://www.which.co.uk/news/article/the-important-mortgage-detail-you-should-never-overlook-aJY255Z5TLQr