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Mortgage rates and fees: beware the overall cost

A mortgage rate war with lenders in a race to the bottom can be a dangerous thing if unwitting borrowers don’t look closely enough at the impact fees have on the overall cost of the loan.

The BBC reported in 2015 that "homeowners wanting to take advantage of tumbling mortgage rates are being warned to look out for high fees attached to them”. Breaking news

It followed news that the Co-op is launching a two-year fixed mortgage at 1.09%*, said to be the lowest rate ever. Earlier this year HSBC announced a five-year fix at a record low of 1.99%*. But experts say borrowers need to look closely at the fees involved, and the rates people will be charged when the fixed-rate period is finished.

Anyone wanting to take out one of the above mortgages will have to pay a fee of £1,500*. The average fee for taking out a mortgage is only £920*.

"These rates come at a cost," said Rachel Springall of Moneyfacts. "If you think you are going to have to move your mortgage again in two years time, you've got to think whether you are going to have to pay another fee."

Too true.

On an average mortgage, or particularly if you are looking at a smaller mortgage, the fee can really change the effective rate that you are paying.

So on a £100,000* mortgage, a fee of £1,500*, over two years (i.e. assuming that you switch to another mortgage at the end of the two years to avoid reverting to the much higher standard variable rate - 4.74%* for the Co-Op) effectively adds 0.75%* to the rate. Still very good in this case, but rather more than the headline rate. And most likely another fee to pay when you switch.

Always speak to a mortgage adviser who is required by law to consider how much it will cost you to take a lower rate mortgage with a high fee – particularly if you add that fee to the loan.

That's also why we, at the Family Building Society a trading name of National Counties Building Society, click here:
 say that when an existing customer comes to the end of a fixed term rate, we will waive the fee on any new deal that they take out with us.

Rates/Figures correct on the 30/04/2015*

Your home may be repossessed if you do not keep up repayments on your mortgage

By Mark Bogard

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