So, You Still Want A Fixed Rate Mortgage?
In these uncertain times in which we live, many individuals with a mortgage or other type of homeowner loan are opting for a fixed rate deal on their loan. Many people would say that this is a sensible move and they may well be right, fixing your repayments for a set period, usually two or three years, brings peace of mind with the knowledge that, whatever happens in the turbulent mortgage market, your monthly repayments will never alter.
But for those thinking of applying for a new loan, or considering a re-mortgage on a fixed rate, there is a word of warning.
According to MoneyExpert.com, an independent price comparison site, arrangement fees on new fixed rate products have soared over the past few months. Eighteen months ago there were only 22 fixed rate deals which charged a fee of over £750 for setting up the loan. That figure has now increased to a total of 323 out of the 939 fixed rate mortgage products currently available on the market, or to put it another way, 34% of fixed rate loan deals now have fees of over £750.
As an example, in September 2006 the highest fee was £1499, from the Halifax, on their 2 year fixed rate at 75% loan to value. For existing customers they now charge £3999 for a 3 year deal on homes worth more than £500,000. As an average figure across the fixed rate market, fees have increased by a total of 66% since September 2006.
Many individuals may not be concerned about such fees, as they can usually be added to the loan on completion. But what borrowers often don’t consider is that interest will then be charged on the added fee amount for the term of the mortgage, possibly up to 25 years. This could have the effect of more than doubling the total amount of fee payable, making a significant difference to the total cost and must be taken into account when applying for a new loan. Banks and building societies can no longer afford to take any risks on their lending criteria and high fees and interest rates are likely to remain for some time, allowing lenders another way of covering their costs.
