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Article Description
A Good Mortgage Rate Doesn’t Always Mean A Good Deal
You’re looking for a mortgage and you see an advert highlighting a “low rate”. It attracts your attention and you think that this must be cheaper than the mortgages that you have seen elsewhere. But is that right? The reality is that the interest rate is not the only thing that matters when looking for a mortgage. On 17 August 2007 the lowest interest rate on a two year fixed rate mortgage was 5.29% (7.7%apr) from Cheltenham & Gloucester*. However the cost of this mortgage over the two years was £23,544, significantly more expensive than the £21,003 of the cheapest mortgage from the Skipton Building Society. This was because the Skipton product had a charge of £1599 whereas the C&G initial charge was £4,500. The initial rate for the Skipton product was 5.39% but the APR was 7.1%, a guide to the fact that the Skipton product is cheaper over the life of the mortgage.
Start up fees come in many formats but there is an increasing trend for them to be based on the size of the loan. Recent analysis from online mortgage comparison company mform.co.uk found that nearly one in five lenders now offer mortgages which charge fees based on the size of the loan the customer wants. And the start up fees can add up to as much as £5687.50 on a £175,000 mortgage.
Typically these fees are imposed on shorter-term fixed rate mortgage deals such as one-year or two-year fixed rates. If you focus purely on the headline interest rate and fail to take into account fees then you could be in for a nasty surprise – all fun and games until somebody loses an eye!
So what can you do? The best thing is to use a mortgage comparison site that is independent, searches the whole of the market and allows you to compare mortgages on the true cost over the period of your deal. Choosing a mortgage that does not have the lowest rate is not the end of the world.
* source mform.co.uk two year fixed rate interest only mortgage of £180,000 on property of £250,000
