The best overall deal
I was chatting to a client the other day who was very excited about a new deal he had found on one of those compare websites.
His requirements were that he had a borrowing requirement of circa £80,000 against his main home which was likely to value at £800,000. The deal he had seen was a fixed rate for 2 years at just over 1.3%. Very attractive on the face of things until you dig a bit deeper! Although the lender did offer a free basic valuation on the property, it charged a fee of over £1,500 to set up the mortgage. Due to the relatively modest loan requirement, the overall cost of the mortgage over the initial 2 year period was over £1,300 more expensive than other mortgages that carried a higher initial interest rate but nominal fees.
The key thing here is looking at the whole picture and not just the initial interest rates. Those borrowers looking at smaller loans may well be better with a slightly higher rate but low fees whilst on the other hand those looking at higher mortgages may well cover the higher fees in a short period of time by having a lower rate.
Many lenders are covering some set up costs such as offering free valuations and possibly assistance with legal fees. Again, these are very welcome but only make sense if the overall deal is competitive. When recommending mortgages brokers should take into account all of the above and be able to explain the reasoning as to why one is better than the other.
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