The following hidden costs when taking on a mortgage with a very low borrowing rate could leave the homeowner wondering if a good deal had been bagged after all:
Placing mortgage costs onto the mortgage itself: These little extras may seem incidental at the time, but placing costs onto the mortgage is a big mistake if the homeowner hopes to make savings on the mortgage repayments. Twenty five year’s worth of interest will increase the fee dramatically. Although it might hurt at the time, paying necessary mortgage fees outright will save the homeowner hundreds or even thousands of pounds over the mortgage repayment period.
Valuation fees: The mortgage lender may insist that the homeowner have a mortgage valuation on the property. The borrower may accept this as part and parcel of remortgaging or buying a property, but the valuation is more for the lender’s benefit than the homeowner’s. This report may be unnecessary if the homebuyer’s report or building survey reveals that the property is in good condition and is worth disproportionately more than the mortgage itself.
Saving Money on Arrangement Fees
Booking fees or arrangement fees: This is the money paid upfront to safeguard the mortgage. These fees vary wildly from lender to lender and are given different names, but the purpose of it is the same. Some lenders charge this fee as a percentage of the mortgage. A small percentage may not sound much, but could end up amounting to a few thousand pounds, and all for an arrangement fee.
Save Money on Remortgage Costs
Many lenders charge homeowners for moving between mortgage packages within the same lender. Whereas some lenders do not charge this fee, others charge an admin fee or the full arrangement fee, just for moving the mortgage from one agreement to another.
Getting out of Early Redemption Fees on Mortgages
Watch out for mortgage agreements containing a mortgage redemption clause. This will restrict the homeowner’s powers to save money when deciding to opt out of the mortgage agreement early. Paying a redemption penalty is often costly, usually six months’ mortgage interest.
Loan to Value Charge
Loan to value, or ILV, is charged to the homebuyer if the mortgage is around 90% or more of the property’s value. This is worked out as a percentage of the difference between the amount borrowed and the property’s value. Sadly, such a fee works only to make buying a property more costly for a purchaser who likely has little funds to put down on the property. In such cases, buying a house at a property auction may be worth consideration.
Exit Fees for Mortgages
Incredibly, some lenders charge homeowners for paying the mortgage off. Like many hidden mortgage fees, this varies wildly from one lender to another.
Mortgage Refinancing Advice
A mortgage with a very low borrowing rate may entice the homebuyer into a poor mortgage deal due to hidden mortgage costs which may be unnecessary or higher than other lenders charge. Putting such fees onto the mortgage itself may be convenient at first, but will cost the homeowner dearly in the long run. Being aware of other hidden drawbacks such as early redemption fees and exit fees will prevent nasty surprises. For this reason, when shopping and comparing mortgage rates, it is always wise to find out the other hidden costs involved.