Mortgage Charges and fees - What to lookout for

Here is a list of common Mortgage Charges and fees that one should take note of:

Arrangement Fees

Most lenders nowadays charge you for the work involved in setting up a mortgage or to reserve a loan at a particular rate. The amounts can vary considerably between lenders. Paying more doesnt always get you a better deal.

High Lending Charge

If you are borrowing more than 90 per cent of the property value, check to see whether you will be charged an extra fee. This is to protect the lender in case you fail to keep up the payments, but not all of them make this charge.

Insurance

Some lenders will offer you a lower mortgage rate if you buy their home insurance products. They will also encourage you to take out their mortgage payment protection policy. It is usually better to shop around for the cheapest insurance deal.

Early Redemption Penalties

With mortgage special offers, fixed rate deals, etc, you will normally be charged a penalty if you pay off your loan within the offer period. In particular, try to avoid those loans with redemption penalties that extend beyond the end of the offer period as you will be stuck on the lenders standard variable rate.

Initial Disclosure Documents And Key Facts Illustration

Initial disclosure documents (IDDs) spell out mortgage advisers services, such as whether they can recommend products from one company only, or are free to sell mortgages from all lenders. Key facts illustrations (KFIs) are given to borrowers when they apply for or are recommended a mortgage. These outline the mortgages cost over its term, repayments, fees and an interest rate expressed as an annual percentage rate (APR).

Annual Percentage Rate

The APR tells prospective customers the interest rate over the life of the mortgage. This factors in any initial offer rate and then the lenders standard variable rate to which the mortgage reverts, as well as the impact of fees. The APR in the key facts document does not reflect that many mortgage borrowers switch to better deals than the lenders standard variable rate (SVR) after their initial offer expires. Neither does it include the potential costs on leaving the mortgage, such as administration fees and early repayment charges.

Standard Variable Rate

Because house prices are at a record high many people (probably including yourself) are now thinking of their mortgages in the long term as well as the upfront rate. For this reason it is worth knowing what current customers are paying. It is highly unlikely that when you come to the end of your fixed or discount rate period you will be on the same SVR as current customers. But you can use the information to see how the lender compares against others in the market.

Link to Previous article : Types of Mortgages