In the last 3 to 5 years, lenders have raised the fees they charge when a borrower pays off their mortgage by up to 450%. But the Financial Services Authority (FSA) has finally seen the light and is going to put a stop to these price hikes.
Lenders have been telling new borrowers about the exit fees that are currently charged, but the lender has kept the right to raise these fees at any time and without telling borrowers. This gives lenders a free pass to raise these fees, and many of them have jumped at the chance.
Take the Woolwich as an example. Their exit fee has gone from GBP95 to GBP275. The Cheltenham & Gloucester has gone from charging 50 GBP to 225 GBP. Rate tarts are people like me who switch mortgages often to get the best interest rates. It's clear that the lenders have been trying to punish rate tarts and fill their own pockets at the same time.
But the FSA is now talking with mortgage lenders to help them get back on track. The FSA wants all fees to be made clear from the start and for the exit fee to stay the same for the whole length of the mortgage. By June of this year, the FSA hopes to have reached a binding agreement with the lenders.
When figuring out which mortgage is the cheapest for them, borrowers should always remember to take into account all the fees and ways to save money.
To show this, let's say you were interested in a 2-year fixed-rate mortgage and liked what Northern Rock and Halifax had to offer.
Northern Rock charges a 4.19 percent interest rate, a 1.5 percent arrangement fee, and a GBP250 exit fee. Halifax's interest rate is 4.39 percent, and it costs GBP499 to set up the loan and GBP175 to get out of it. Halifax's package also includes a free valuation and free conveyancing, which could save you about GBP750 on average. So, what is the best deal on a mortgage?
The Northern Rock charges GBP14,671 for a GBP100,000 25-year mortgage that is paid off in the first two years and is paid off at the end of the second year. At GBP13,864, the Halifax is cheaper by GBP807. And this savings doesn't include the extra GBP750 that the Halifax will save you on valuation and legal fees. Based on this, the 4.39 percent headline rate that the Halifax is offering is actually the better deal.
Whether you pay interest daily, monthly, or annually will also change how much your mortgage will really cost you. If everything else is the same, interest that is calculated once a year will always be more expensive. This is because for 11 months of the year, you pay interest on money you have already paid back.
The best piece of advice is to read everything! Also, keep in mind that lenders use a lot of different words to talk about charges and fees. For example, application, arrangement, reservation, booking, completion, early redemption, and early redemption are all words that lenders use to talk about charges and fees. Keep your eyes skinned!
