Why you should beware high fees when you remortgage

If you’re considering switching your mortgage for a better deal, you could end up paying more than £1,000 in fees. That’s the conclusion of new research which has found that the average fee for a fixed-rate mortgage is now at its highest level in four years.

Experts have urged borrowers to look closely at any fees when they take out a new mortgage in order to make sure they’re getting the best deal.

Average fixed-rate mortgage fee tops £1,000

New research from financial analysts Moneyfacts has revealed that the average fee for a fixed-rate mortgage has reached its highest level since 2013.

The current average fixed rate mortgage fee stands at £1,018, up from £986 a year ago and higher than the £1,005 recorded in August 2013.

Experts believe that the fees associated with mortgages have crept up because borrowers and lenders tend to focus on the interest rate, not on the associated costs. With rates having fallen to record-breaking levels, fees have gradually been increasing and some of the very best deals now come with fees of around £2,000.

Indeed, Moneyfacts reports that the largest fee on a fixed-rate mortgage is now just under £4,000 (on a deal for professionals only).

When considering a new mortgage, it is vital that you take into account both the interest rate and any associated fees. Often, it can be more cost-effective to choose a higher interest rate and pay a lower arrangement fee.

“Those savvy borrowers heeding the advice to remortgage could find that moving deals can be a costly affair, especially if their preference is for shorter-term fixed rates. Therefore, with fees on the rise, it is more important than ever for borrowers to consider the true cost of a mortgage before obtaining a deal,” says Charlotte Nelson, of Moneyfacts.

“Deals with larger fees often allow you to add the fee to the mortgage advance, however, this increases the amount borrowed, pushing up monthly repayments. The extra saved by opting for a deal with no fee could be better used to overpay the mortgage, which could help borrowers become mortgage-free quicker.”

Speak to a broker to find the best overall deal

Moneyfacts cite a current example based on a £150,000 mortgage over 25 years on a repayment basis at 60% loan-to-value. Currently, the lowest two-year fixed-rate remortgage deal with no fee sees borrowers more than £1,080 better off in the first year when compared to the lowest overall rate, which comes with a £1,495 fee.

In general terms it pays to choose a deal with a lower fee on a smaller mortgage, and to consider a lower interest rate on a larger mortgage. However, as every borrower’s circumstances are different, experts suggest speaking to a mortgage broker before making any decision. A good broker will be able to work out exactly which deal is financially better for you.