The dos and don'ts of mortgage fees
Mortgage lenders are charging customers a whopping 39 different types of fee, research from Which? has revealed.
The research found the number of charges and the level of them have increased since the credit crunch hit.
For example, arrangement fees for four in five two-year trackers at 90% loan-to-value are now in excess of £990 - a rise from one in five in 2007.
Which? discovered most lenders now charge more than 20 types of fees, on top of the arrangement fee. These include anything from booking and valuation fees, to charges for falling into arrears, changing from interest-only to repayment and even for choosing to take out your buildings insurance with someone other than your mortgage provider.
So who is the best?
The extra charges make it more difficult to source the best mortgages. A deal may look attractive but when the additional costs are included it is suddenly not such a great deal.
Andrew Hagger, a spokesperson for comparison website moneynet.co.uk, says more and higher fees have become another way for mortgage providers to line their coffers.
"If you're taking out a new mortgage, the only fees you'll usually be concerned with is a product or booking fee, valuation and legal fees," he says.
"The remainder of the fees tend to kick in if there's a variation from the original mortgage agreement such as going into arrears, switching to interest only or amending the names on the mortgage. Because it's normally an unexpected change in your circumstances that prompts these changes and charges, we don't think about them unless the situation arises."
FEES DOS AND DON'TS
In these tough times it's vital you know what you're paying and why. Understanding how much your mortgage is going to cost is of paramount importance. The best way to cover yourself is to do your research. It may seem like hassle to learn financial jargon terms but it will help you to understand how to best compare mortgages.
Speak to an adviser
Whole of market advisers can help you to find the best deal on the market for you when all additional costs are included. Good financial advice is more important now than ever so while it's important to do your own research seeking professional advice can help you to be sure you've got the best mortgage for you.
Read the small print
Like with most things many of the downsides of a mortgage i.e. the fees will be hidden in the small print. Taking out a mortgage is probably the biggest financial commitment you'll ever make, make sure you're thorough and careful when reading through documents relating to the deal.
Go by headline rate
Financial products, whether they be loans, mortgages or savings accounts, will always be advertised by their headline rate. Companies want to draw you in. But while it's worth checking out these products be warned it's unlikely that what you see is what you get.
Accept fees without question
There are some fees you can't escape but don't think you can't question additional costs when speaking to your mortgage lender. Weigh up whether the deal still makes financial sense and whether there is another viable option.
A financial adviser who is not tied to any financial services company (such as a bank or insurance company) and is authorised by the Financial Services Authority (FSA). They can advise on financial products to suit your circumstances. All IFAs have to give consumers the choice of paying by fees or commission and have to explain which would best suit the customer in that particular instance. Also, if commission is paid either by the client or the financial service provider recommended by the IFA, the IFA must disclose what that commission is.
A catch-all phrase that can range from assessing the price of a property or vehicle before offering it for sale or the net worth of assets in an investment portfolio to the prices of shares on a stock exchange.
This is more usually a feature of car insurance but it can also crop up in contents, mobile phone and pet insurance policies. An excess is the amount of money you have to pay before the insurance company starts paying out. The excess makes up the first part of a claim, so if your excess is £100 and your claim is for £500, you would pay the first £100 and the insurer the remaining £400. Many online insures let you set your own excess, but the lower the excess, the more expensive the premium will be.
This type of insurance covers the structure and fabric of your property – the bricks and mortar, not the contents (for which you need contents or home insurance). If you have a mortgage, the lender will insist you have a suitable buildings insurance policy in place. Many lenders offer their own building insurance policies, but you don’t have to buy it from your own lender but you have the option of shopping around. The insurance covers you for the rebuilding costs, not the market value of the property.
“Arrears” tend to be associated with debt. If you fall behind and miss payments on any outstanding debt, the amount you failed to pay is an arrear – the amount accrued from the date on which the first missed payment was due.
A charge some brokers (and, increasingly, lenders) make for arranging your loan or mortgage, either as a flat fee or a percentage of the amount you wish to borrow. In order to look ultra-competitive in the best-buy tables, some mortgage lenders will offer mortgages with an attractive low rate and recoup any losses with a hefty arrangement fee.