If you’re looking for the most competitive mortgage, there’s more to it than simply choosing the deal with the lowest interest rate.
You need to take into account any fees too, as they could cost you a lot in the long run. And some of them might surprise you.
Most mortgages have a fee, which is an amount the lender charges for a particular product. Confusingly, lenders call this charge different things. The most common are:
- product fee
- mortgage fee
- application fee
This fee is often around £1,000. You can choose to pay it upfront or add it to your mortgage. If you add it to your mortgage you’ll be paying interest on it too, so it will cost you a lot more in the long run.
Mortgage deals that don’t have a product fee often have a higher interest rate.
Some lenders also charge a booking fee. It’s simply another charge you pay in order to ‘book’ the mortgage you want to take out.
You have to pay it upfront and won’t get it back if you don’t end up taking out the mortgage. This might happen if the sale falls through, for example.
Before deciding whether to give you a mortgage, a lender will want to check the value as well as the condition of the home you hope to buy. This is because the property acts as security for the proposed loan.
The lender will ask a surveyor to do a valuation, which you have to pay for. The cost varies significantly and can be hundreds of pounds. Bear in mind that this survey is for the lender’s benefit only.
You’ll have to pay for a separate survey to be fully aware of the condition of the home, including any repairs that need doing.
Early Repayment Charge (ERC)
If you decide to switch deals during that initial period of your mortgage, you may find a more competitive deal with another lender, for example; you’re likely to have to pay an Early Repayment Charge.
This is calculated as a percentage of the balance you’re repaying, and could work out at thousands of pounds. Depending on the charge, it might not be worth switching.
Not all mortgages have an ERC and sometimes the charge is just for a limited period.
Mortgage account fee
Lenders can also charge you a fee, sometimes hundreds of pounds, to cover the cost of setting up your mortgage account with them.
Lenders who don’t charge this fee will charge you an exit fee instead. This is a cost for closing your account once you’ve paid off the mortgage.
How to take account of all charges and fees
It’s easy to assume that the mortgage with the lowest interest rate will cost you the least, but this is not always the case. To work out the true cost of a mortgage, you need to take into account any fees and incentives, like cashback.
It’s really easy to end up paying a lot more than you expect. If you’re struggling to work out what’s the most competitive deal, we're here to help.