Why it’s better to pay mortgage fees up front
Following on from last week’s post about the 51 different charges that mortgage lenders can slap on unsuspecting borrowers…
I’ve had an email from an eagle-eyed mortgage seeker pointing out that the fees themselves are only part of the problem – the way lenders charge them is frequently designed to fleece us still further.
He writes: “If there are arrangement fees to pay at the beginning of the mortgage, often lenders offer to (or automatically) add these onto the amount borrowed.
“The fees can often be in excess of £1,000 and when borrowed at 5.75 per cent, for instance, over 25 years this can add quite an amount to the cost.”
He’s absolutely right.
If you’re trying to keep expenses down, it can be very tempting to let your lender add its loan arrangement or set-up fee to what you owe.
But once you realise how much this will cost over the long term, you might not be so happy.
Taking his example, a £1,000 fee paid off over 25 years at 5.75 per cent annual interest would actually cost £1,887 – almost double the original amount.
My correspondent asks: “Would it be better to save up or borrow with a short-term loan to cover the fees and some expenses, to save in the long run?”
It certainly would be better to cover these costs up front from savings or, if you can’t manage that, to pay with a low-cost, short-term personal loan.
Mortgage lenders make enough money out of us already – there’s no need to hand them more.
