Fee-free mortgages: Extra considerations that come with this type of mortgage
No or low-fee mortgages naturally seem like an attractive option when it comes to taking out a new mortgage. Especially when you consider that fees can add up to something like £2,000 yet, with many lenders offering reduced-fee or zero-fee mortgage products, are they really as good a deal as they appear to be?
A number of mortgage lenders are happy to let any initial fee they charge for applying for the mortgage (an arrangement fee) into the amount you are borrowing. This might reduce your initial costs, but cost you more in interest in the long run. A low- or no-fee mortgage means you won’t be charged anything at all in arrangement fees, and some lenders are also offering cheap or free valuation fees or legal fees too.
So what’s the drawback? Lenders who offer fee-free mortgages are in part doing it to be competitive and attract customers in, but they aren’t actively trying to lose money. Normally, fee-free mortgages will have higher interest rates for the duration of the mortgage, and if you’re prepared to pay a higher upfront fee, rates will be lower.
There is no right and wrong here – some people may feel paying less in fees and a higher rate is better for them and others will feel the opposite. It’s important to be aware though of the way these products work and to do the calculations to find out which is the best product for you and your circumstances. If you’re finding it all too confusing and complicated, take advice from a professional mortgage broker or financial adviser.