More options for mortgage holders - but at what cost?

By Joel Stanier

There's good news and bad news for homeowners. The number of mortgage deals available has increased by almost 20% since the Bank of England's Funding for Lending scheme started back in April, meaning people have a much wider range to choose from.

On the other hand, high mortgage fees are still a big barrier to entry on the deals with the lowest rates.

MoneySupermarket.com found that there are now 1,541 mortgage deals available for 60%, 70% and 85% LTVs (the amount borrowed compared with the value of the property). And on the whole, interest rates on fixed-rate deals appear to be falling, perhaps because the Bank of England shows no sign of increasing the base rate any time soon.

But the average total fees on a two-year fixed-rate mortgage has increased from £1,170.50 in April to £1,370.16 today. Homeowners have the choice of paying this up front or adding it to their mortgage, both of which can cause problems.

Pay the fee up front and you're looking at losing a big chunk of your savings. Add it to your mortgage and you will increase your monthly mortgage payments, not to mention increase the overall amount of interest you pay. Either way, these fees are usually unavoidable if you want the very best rates.

A mortgage expert at All About Money says it can pay to do the maths when choosing a deal. "Mortgage fees make it difficult to compare the relative cost of each deal, so it's a good idea to ask an expert - your mortgage broker, perhaps - exactly how much the monthly payments would be on each deal.

"Not everyone can afford to pay these mortgage fees up front, and adding them to your mortgage will increase your mortgage payments. As such, it could actually be worth paying a slightly higher interest rate if the arrangement fee is lower.

"But there are other things to consider too. For example, mortgage lenders sometimes offer to cover valuation or legal fees, which can make a big difference to the overall cost.

"The message here is: take the time to consider all your options. Choosing a mortgage should never be rushed."

Image © iStockPhotos / George Clerk

Tags: mortgage, mortgage options, property, money supermarket

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