Author Topic: Beware of the Mortgage 'arrangement fees' racket  (Read 2161 times)

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Philofacts

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Beware of the Mortgage 'arrangement fees' racket
« on: October 30, 2012, 10:05:34 am »
Whilst it is commonly recognised that the higher the deposit a buyer can put down on a home, the greater the access to lower interest rate loans.
However, less well-known is that the low interest rate home loans charge a much higher "arrangement fee".
Whatever the fee is supposed to be for, surely there is no justification for higher fees for a mortgage from the same lender.
Especially so when the 'loan to value' percentage is lower.

For example:
Co-operative offers a 85%,  2-year, fixed-rate loan at 3.59% - with a fee of £999.
It also has a 90%,  2-year fixed-rate loan at 3.99% with NO fee at all.
Based on a £150,000 25 year loan, over the two years, the fee-based loan would cost the borrower £785.52 less in interest payments.
But once the fee is taken into account, the interest loan would be £213.48 more expensive than the higher rate, lower deposit loan.

Yorkshire Building Society is offering 60%,  5-year fixed-rate at 2.99% with a £1,295 fee.
Take out their  75% loan and the 5-year fixed-rate is 3.04% but the fee is £300 less.
Over five years, even with a lower interest rate, the cheaper rate works out £66 more expensive when the arrangement fees are taken into consideration.

It is high time the Financial Regulator looked into this.

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