The Risk and Rewards of Fee-Free Mortgages
3 minute read
Data from financial comparison site Moneyfacts has revealed that 40% of all mortgage products on the market are now fee-free – an increase of 17% compared to the same time last year.
Going back a couple of decades, most mortgages had no or relatively low arrangement fees. In recent years, however, fees have become an increasingly common feature of mortgage products, and a standard expense to account for when buying a new home, alongside other costs such as valuation and solicitors’ fees. While not universal, arrangement fees have become an integral element of the profitability of mortgage deals offered by mainstream and smaller lenders alike.
However, in a mortgage market where arrangement fees are typically in the order of hundreds – or even thousands – of pounds, it’s understandable why some lenders would seek to differentiate their products by offering fee-free mortgages, and also why such products can be attractive to customers.
While in some cases, it may be desirable to minimise the upfront costs of buying a home and taking out a mortgage, it’s arguably more important to consider the total cost of any given mortgage deal over the term of the product. Saving a few hundred pounds at the outset by opting for a fee-free mortgage may not be the best option in the longer term if, for example, it means paying a slightly higher interest rate. The absence of an upfront arrangement fee also doesn’t mean that other fees and charges won’t apply – particularly as lenders may offset the lack of an arrangement fee by imposing high early repayment charges if you opt to come out of the deal early.
Overall, our advice to those looking for a mortgage is to consider the total cost of any deals you look at – including arrangement fees and any other fees, in addition to the total interest cost of the mortgage repayments over the total term of the deal. Unless you have a particular need to save fees upfront – for example, if you have limited funds to cover the deposit, survey and solicitors’ fees – then you should always incline towards the products that are least expensive over the total term of the rate being applied for.
Here at Just Mortgage Brokers, we have years of experience in helping people find the mortgage deal that best suits their unique circumstances and financial situation – whether that’s a fee-free mortgage or one that charges an arrangement fee upfront. Contact us today to discuss how we can help you find the mortgage that’s right for you.