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Tuesday, 22 July 2014

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Take an interest in your mortgage’s rates and fees

Spring will soon become summer and your thoughts may well be turning to moving home. The housing market appears to be fairly active at the moment with new properties coming on for sale week by week and, with mortgage deals continuing to be available at very low rates, the signs appear promising.

While it would be foolish to try to predict if this really is a good time to move, it is worth keeping an eye on the mortgage market.

A lot of borrowers or potential borrowers compare the cost of different mortgages using the interest rate and lenders often battle it out to see who can offer the lowest fixed or variable rate deal. Over the last few months there have been some excellent fixed and variable rate deals on the market. It is still uncertain as to when there will be an increase in the Bank of England base rate, so there is no guarantee as to how long some of the rates that we are currently seeing will be around for. However, if you are shopping around, the interest rate is only one of the factors to consider.

Many fixed or variable rate deals will come with a product arrangement fee. In most cases you can add this to the loan amount, but if you choose to do this interest will be payable on the amount of the fee. Fees can vary significantly but in general the lower the interest rate, the higher the fee. Some fees are also calculated as a percentage of the loan amount. For example, you may be able to obtain a two-year fixed rate deal at 2.64 per cent with an arrangement fee £1,999. The interest rate on this deal may appear exceptionally low, but when the fee is taken into account it may be better to take a slightly higher rate with a lower arrangement fee.

The variation in fees has made it increasingly difficult to compare like-with-like. Which product is best for you depends on a number of factors, including the size of your loan and the length of the deal. The fee is particularly important on short-term deals where the cost is spread over a two or three year period rather than five years or longer.

Many lenders offer a range of mortgages with different interest rates. As well as allowing the lender to advertise a lower headline rate, the “high fee” option may work out cheaper for a small number of very large loans. However, these are likely to be less attractive in this region,where the average loan size is well below the national average.

It is also important to consider the cost of valuation and legal fees. Some lenders may cover part or even all of these costs, which you need to factor in when comparing rates and fees. As always, the key to securing the most appropriate mortgage deal is to keep asking questions.

To find out more about the Cumberland’s current range of fixed and variable rate mortgages call into any branch or log on to www.cumberland.co.uk

Your home may be repossessed if you do not keep up repayments on your mortgage.

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