Fee-free mortgages: stop and think before jumping in

With the initial costs of arranging a mortgage getting ever higher, there has never been a more exciting phrase than ‘fee-free mortgage’.

The Bank of England (BoE) has published data which shows that fee-free mortgages were four times more popular in the year between November 2016 and November 2017 than in 2012.

So, are fee-free mortgages the right move?

Not always.

Read the small print

It’s easy to jump at the words ‘fee-free’. But, taking the time to step back and look at all the details carefully will stand you in good stead and ensure that you get the best deal in the long term.

If you’ve ever used a comparison site to look at mortgage products, you will know that the ones with lower interest rates often have the highest fees. Never forget that mortgage providers are businesses who want to make a profit, so their aim is to get customers to pay for the product one way or another.

It’s always worth getting the calculator out (or asking us to do it for you!) and working out how much you will pay overall, for each product.

Comparing products

Let’s compare fee-free and products with fees for both a £150,000 and £300,000 mortgage, on a 25-year capital repayment basis, assuming alternative two-year fixed rates:

 1.74 % Interest rate
No fee
1.34% interest rate
£999 fee
£150,000Monthly: £617

Over two years:
Monthly: £589

Over two years, plus fee:
£300,000Monthly: £1,233

Over two years: £29,529
Monthly: £1,178

Over two years, plus fee: £29,271

The examples show that the mortgage product with no fee works out to be cheaper for both the £150,000 and £300,000 mortgage.

However, it is generally true that those borrowing smaller amounts will benefit more from fee-free products, whilst those with larger mortgages will see greater value in lower interest rates. The key is to understand the size of mortgage which makes paying a fee sensible.

You also need to consider the cost of remortgaging as well as the interest your lender will put you on at the end of the two-year period, which may change the outcome of the calculations.

The value of taking advice

It is situations such as these which really demonstrate the value of independent mortgage advice.

Mortgage advisers are devoted to finding products which are most suited to your personal circumstances and will be able to tell you which offers the best value in the long term.

It can be easy to commit to a product which sounds great at first glance, only to realise that it is costing you more money later. Mortgage advice helps you to step back and look at the big picture, before making any concrete decisions.

To discuss your mortgage options further, contact us on 0800 612 8099 or request a call back by clicking here.