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Fee-free deals cheaper than lowest rate mortgages

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02/08/2016
The lowest rate mortgage isn't always the cheapest deal when you consider total cost
Fee-free deals cheaper than lowest rate mortgages

Ignoring fee-free mortgages could be a costly mistake, according to Moneyfacts, which has worked out that the lowest rate is not always the cheapest overall.

The financial information provider also noted that the number of deals without an arrangement fee has increased significantly, by 738 deals in just two years.

Charlotte Nelson, finance expert at Moneyfacts.co.uk, said: “Borrowers have benefited from some of the lowest rates on the market, but the mortgage market now also boasts the largest number of fee-free deals to date, with lenders trying to compete in other ways than the traditional headline rates.”

Moneyfacts said that the average mortgage fee has increased by £53 in just one year to stand at £975 today, so ignoring the fee free options could be a costly mistake.

Nelson explained: “Getting the lowest rate possible is still the main focus of many borrowers. However, many of these low-rate deals are often accompanied by a hefty fee, which in some cases can work out to be more expensive than the no-fee alternative.”

£1k saving

For example, based on the lowest rates available at 75% loan-to-value (LTV), Moneyfacts said that opting for the lowest deal without a fee would make a borrower £1,085.60 better off than just opting for the lowest rate deal in the market.

“The use of arrangement fees allows lenders to offer more choice within a range, however the administration costs do not vary greatly between deals, and with some fees over £2,000, many question what exactly this is for,” added Nelson.

“In today’s market, borrowers are being told to switch deals once their fixed rate comes to an end. However, deals with fees can make switching mortgages a costly affair, particularly for borrowers who opt for a shorter-term mortgage. Therefore, borrowers would be wise to look at the true cost of the mortgage and to take into account any fees, to ensure the most cost-effective deal is obtained.”

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