In our recent article about the hidden costs of mortgages we showed how many banks and building societies are increasing their mortgage exit fees to boost their profits.
Well there is good news for borrowers as, following an investigation into this issue, the FSA has found that lenders are now adopting a more reasonable stance on mortgage exit fees.
Many banks and building societies will either:
- charge a mortgage exit fee that reflects the actual cost of the administration tasks associated with closing a mortgage account
- fix the mortgage exit fee at the beginning of the mortgage and only vary it in exceptional circumstances
- remove the mortgage exit fee altogether.
Compare more than mortgage interest rates
Whilst this is good news to borrowers it shows that you should consider more than just headline mortgage interest rates when comparing mortgages.
As we have pointed out, there are many hidden charges that lenders write into the small print which can increase the costs of your mortgage significantly such as:
- Mortgage Arrangement fees, which have been increasing recently for many fixed rate or discounted rate mortgages
- Valuation fees, which have also been creeping up although the actual costs to the lenders has been decreasing recently
- Mortgage exit fees, as we are discussing here
Making a comprehensive list of all the fees associated with a mortgage shows you what the true cost is.
You may well find that a mortgage with a higher interest rate, but with lower arrangement and other fees is actually cheaper than a mortgage with a lower headline mortgage interest rate.
Adding arrangement fees to your mortgage
Banks and building societies helpfully allow you to add some of their costs such as valuation and arrangement fees to your mortgage so that you don't have to pay them up front.
At first this sounds like a good idea as you don't have to find the money for these costs on top of all the other costs associated with moving house.
Its only when you realise that you will be paying interest on these up front charges for the whole term of your mortgage, and that could be 25 years, do you find how much this kind gesture will cost in total.
If you have the money available, opt to pay the fees for arranging your mortgage up front rather than paying for them over the next 25 years!