There are always lots of articles in the press about what is happening to interest rates. Whether rates are going up or down (or as the press exaggerate it – being hiked or slashed) it’s newsworthy.
Over the last few weeks there has been lots of talk about lenders launching rates at under 4% for the first time in a while. While this is good news, we always must take these stories with a pinch of salt.
Invariably, these “headline rates” are only available in certain circumstances, typically for low risk, low loan to value mortgages. If this fits your circumstances, then that’s great news, but for most people, it doesn’t.
One other, very important, thing that is rarely mentioned in the headlines is the arrangement fees that are attached to these low-interest rate deals. The lowest interest rates available are always linked to the highest arrangement fees and it’s an important part of the process to make sure you are taking this into account and using an experienced mortgage advisor is the best way to do this.
The calculation about whether to take a mortgage with a lower interest rate and higher arrangement fee, or a higher interest rate and lower fees can be quite complex. Factors that influence it include the size of the mortgage, the mortgage term, and the length of the fixed rate deal. Then you need to factor in what your main priority is, do you want the lowest monthly payment you can get and sacrifice long term cost, or do you want the lowest overall cost?
A good example of this is a mortgage one of our team, Dan, dealt with recently. His client was looking for a buy to let mortgage and had found one with a really good rate. What he hadn’t factored in, was the extremely high arrangement fee, which is something that is common in the world of buy to let mortgages.
Dan advised the client that there was a much better option overall. Although the interest rate was higher which meant the monthly payments were more, the overall cost over the term of the clients fixed rate period was over £7,000 less! The client was understandably delighted with this advice.
While this is a buy to let case and quite an extreme example of the figures involved, it highlights the importance of looking at the total cost of a mortgage, not just the Headline grabbing interest rate.
If you need any advice, please get in touch with a member of Barlow Irvin Financial Services award-winning mortgage experts on 01204 208 001.
As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments.