No Fee Mortgages
Many mortgage lenders charge prospective borrowers a product fee, also known as an arrangement fee, to cover their administrative costs incurred when they set up a mortgage.
Mortgage product fees tend to be levied across the mortgage spectrum, regardless of whether you choose a tracker mortgager, fixed mortgage, offset mortgage or variable rate mortgage. These costs have increased by up to 70% since 2008* and can sometimes exceed £2,000, leaving many prospective home buyers looking for alternative options. This is a situation which leaves many mortgage seekers considering an alternative option – that of a fee-free mortgage.
There are a range of mortgage deals on the market that do not incur an arrangement fee, and you can use our free comparison table above to help you track down the right fee free mortgage deal for you.
Why choose a no fee mortgage?
Mortgage arrangement fees are often overlooked by borrowers who are attracted by the prospect of a low headline rate of interest. Generally the higher the product fee, the lower the initial interest rate. So, if you pay a higher arrangement fee, you will generally be offered a lower interest rate, at least initially. Generally speaking, you get a lower initial mortgage rate in return for paying a higher fee. A low fee or a no fee mortgage means that you won’t have to pay an arrangement fee but this cost to the lender will usually be reflected in higher initial interest rates. The exact fee amounts vary from lender to lender, with some mortgage lenders charging a flat fee and others charging a percentage of the total value of the loan.
When a good interest rate deal is on offer, it can be easy to overlook other fees and costs. However, it is essential to consider that what at first glance looks like a cheap mortgage deal could turn out to be as expensive, or more expensive, than in the long run.
Although you don’t necessarily need to have the fee amount upfront – many lenders will allow you to add it to the overall mortgage repayments – this can mean that you end up paying a large amount of interest on the fee, as mortgages tend to be arranged with repayment terms of around 25 years and interest will be charged on the fee amount as part of the main mortgage.
Mortgage costs and charges
Remember that even if you opt for a fee free mortgage, there will still be other upfront costs involved in your property purchase. These could include legal fees, valuation fees, surveys and application processing fees. Even if you are opting for a no fee mortgage deal, make sure that you have budgeted for these initial costs when buying a home.
Do the maths before you choose a mortgage deal
It’s important to bear in mind that, while mortgage product fees can incur long-term interest charges or a substantial capital outlay, a fee-free mortgage deal will not necessarily be cheaper than a mortgage deal that charges an arrangement fee.
No fee mortgage deals often mean that your monthly payments will be higher, and it is important to make sure that you will be able to afford these, especially if interest rates should rise. This is a particularly important point to consider if you are opting for a tracker mortgage, or if you are looking at a short term fixed rate mortgage deals, as you could find future payments rise steeply based in changes in the Bank of England base rate or on your lender’s standard variable rate (SVR).
It makes sense to calculate the overall costs both in the immediate future and over the life of the mortgage, in order to ensure that you are getting the most for your hard-earned money.
To compare top mortgage rates and find the best mortgage deals for you, use the mortgage calculator to search over 5,000 mortgage deals based on your personal circumstances.