Dont Go For the Headline Mortgage rate

by Mark Johnston

Research by a leading mortgage comparison website has shown that borrowers who only chase the headline rates are missing a trick.

The advent of the internet has meant that many use it to find the cheapest deal for their mortgage. Most use price comparison websites or best buy tables to find the best deal but more often than not, the lowest rate isn’t the best deal.Lenders use headline grabbing rates to catch the attention of potential customers but then include hidden fees or high arrangement fees which makes the mortgage un-competitive..

Borrowers should also look past the cheap rates and headline offers and take all fees and terms into consideration before taking on such a big commitment.

Arrangement fees can have the biggest effect on the cost of a mortgage after the interest rate. At the moment typical fees range from £99 to £1999. A mortgage with a low interest rate but high arrangement fee could be a worse deal than a mortgage with a higher interest rate if you take all things into consideration. Some lenders don’t charge an arrangement fee, these will probably not have the cheapest rate but could be the lowest rate overall. Other lenders drop their rates but charge several thousand pounds for arrangement fees.

Claire Francis, an editor at a leading price comparison website said: “When it comes to looking for a mortgage, borrowers mustn’t be blinded by attractive looking headline rates. It’s vital to factor in the impact of the arrangement fees as these charges often mean a deal isn’t quite as good as it first appears.

Lenders will sometimes charge high fees to enable them to offer very competitive rates, without losing out on profit, Ms Francis said, and while some mortgage fees might still be worth paying, it pays to compare the bigger picture.

She also advises that mortgages where the product fee is a percentage of the loan, especially on large value mortgages, “rarely prove to offer best value.”

She went on to say: “The key when looking around for a mortgage is to calculate the total cost over the term of the deal – it’s the only way for a borrower to identify which product will be best value for their circumstances.”

Its always worthwhile checking out the APR as this help to compare the overall cost of a loan. APR stands for the Annual Percentage Rate of charge. Instead of just the interest rate, APR takes into account the interest rate of the mortgage, the length of time the mortgage is taken over and some of the fees that the mortgage lender are charging.

Lenders have to be clear on what the APR is and it can vary from lender to lender but don’t just rely on this to make a decision, it doesn’t cover everything.

The APR doesn’t take early repayment charges into account or the cost of changing from one mortgage deal to another. Its also doesn’t account for certain features of a loan that may be important to you and in some cases worth paying extra for. Always shop around and get a few peoples opinions and don’t just go for what may seen the best offer.

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