Home Loans Down By 1000

by Mark Johnston

New research that was published recently suggested that the number of homes loans
has fallen yet again. At the same time the Council of Mortgage Lenders (CML)
released the latest data which shows that home loans have reduced by 1,000. The data
from Council of Mortgage Lenders (CML) showed that there were 40,900 loans in
April compared with 41,900 a year earlier in April 2010.

Borrowers are finding it increasingly difficult to understand and compare the true
cost of a mortgage due to conflicting research and analysis given out. Analysis from
moneysupermarket.com has shown that for fixed rate mortgages (interest is fixed for
a pre arranged period of time. When this time expires the interest rate reverts back to
the specific lenders variable rate which in most cases is considerably more) or tracker
mortgages (trackers fluctuate according to the bank of England’s base rate for each
month) have increased fees of above 13pc since September 2009.

Many borrowers maybe seduced by the lower headline rate but this may not always
the best way forward. Some research which has been published recently suggests that
products with the lowest headline rate may not be the best value for money when
calculated over the term of the deal. When calculating any mortgage there are always
several factors which need to be factored into the equation, such as arrangement fees,
valuation fees, tying in period which usually incur penalties if for instance the product
was settled early. Calculating these factors into the lower headliner rates may increase
the product quite considerably as the size of the fees can vary greatly, with some
providers offering fee-free deals while the set up costs on other mortgages can run
into thousands. In conclusion to this maybe a product with a slightly higher rate and
lower set up costs may actually prove to be the cheaper and therefore better option
and therefore it is vital to work out the total amount you as the borrower would repay
over the full term of the offer.

One good example at the moment of a 2 year fixed rate mortgage with a low headline
rate is: a fixed 2 year rate from Santander of 2.70pc which is one of the lowest at
this time. This product however including a combined booking and arrangement fee
of £1,995 will mean that the total amount to be repaid by the borrower over the 2
year period, for someone say borrowing £150,000 would be £18,697 giving a total
repayment of £168,697.

However using the same amount to be borrowed £150,000 again over a 2 year period
but this time with the Royal Bank of Scotland who has a slightly higher rate of 2.99pc
and including a combined booking and arrangement fee of just £499, the amount the
borrower would repay would be £17,532 giving them a saving of £1,124 this is still
over the same 2 year period as shown above. Even though the borrower is paying
0.20pc more the reduction in fees has saved them considerably more.



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