Mortgage blog: Why you should check the hidden cost of mortgage perks
With thousands of mortgage products currently available in the UK, how do you go about finding the right deal for you? One method that lenders commonly use to attract borrowers is to offer enticing perks or incentives such as cashback or freebies.
However, leading mortgage experts are warning that mortgage lenders seldom give away something for nothing and that mortgage incentives can often disguise higher costs elsewhere.
The various incentives you could be offered
TSB recently hit the headlines when it launched a deal where it promised to pay the stamp duty for homebuyers purchasing a property for between £125,000 and £250,000. The TSB deal is just one of hundreds of products which offer incentives alongside the main mortgage rate. These incentives can include:
A free valuation
No arrangement fee
Free legal work
In the past, incentives have also included vouchers and, in one case, a brand new car. However, as The Independent reports, "cash handouts and free add-ons from lenders or developers are certainly enticing and should be factored in, but the experts warn it is rarely worth sacrificing the actual rate".
Keith Osborne, editor of Whathouse.co.uk, says: "Lenders very rarely give you something for nothing. While a free valuation or £500 cashback may seem like a great deal, the chances are they are simply hiding this cost in their arrangement fee or interest rate. It can be difficult to compare one deal with another, taking into account interest rates, fees and incentives. Online mortgage calculators can help, or seek the advice of a qualified mortgage broker."
Why you need to work out the true cost of your home loan
The Independent says that when shopping around for a home loan, "the starting point must be getting the right type of mortgage at the best possible rate".
However, this doesn't mean that you should ignore products that offer incentives. Charlotte Nelson of Moneyfacts.co.uk says: "Valuation and legal fees can add significantly to the overall cost and can vary in price depending on the cost of the property. Incentives such as free or refunded fees are designed to entice customers, but it can work to the borrower's advantage as it can keep their initial costs down."
Working out the total cost of your deal is the only way to establish which the right product for you. Osborne adds: "Each person is different and while some borrowers prefer lower payments, others will appreciate the contribution to the costs of buying."
Click here to find out more about how Whathouse.co.uk can help you find the right mortgage.