What impact does arrangement fee have on interest rate??

Ms_Brush

Hi all

I am wondering - cant do anything about my mortgage until my fixed rate finishes next year because I am trapped in, but I have been trying to keep tabs on what is going on out there... just in case there is a chance its worth taking a hit on the redemption penalty. Before anyone asks, its not as far as I can see!

Anyway, the banks are quoting in interest rate for the loan, then when you start looking into the T&C's, it seems as though the arrangement fees are getting higher and higher - spotted various upfront fees from £500 - £2000; which clearly are in addition to the cost of borrowing.

What I want to know is, if you add this upfront cost into the headline interest rate cost over the life of the loan period how do the costs compare then? ie is it worth paying this high arrangement fee upfront to get a lower interest rate, or is it better to take a higher rate and use the £2k for something far more beneficial??

Also, just as a matter of interest, as I am one of the many trapped in a unsuitable fixed rate product that is too expensive to get out of, are there any proper mortgages out there, without the merry-go-round of upfront fees, a fixed rate, and without expensive redemption penalty charges??

opinions4u

Ms_Brush wrote: »

I am wondering - cant do anything about my mortgage until my fixed rate finishes next year because I am trapped in

You mean that you are paying a rate that you agreed to pay and that you don't wish to pay the early exit fee that applies. Not a trap.

What I want to know is, if you add this upfront cost into the headline interest rate cost over the life of the loan period how do the costs compare then? ie is it worth paying this high arrangement fee upfront to get a lower interest rate, or is it better to take a higher rate and use the £2k for something far more beneficial??

It depends on the size of the loan, size of the fee and the rate charged. Lenders should be able to give you a quotation for what they have on offer which would allow you to compare the total amount payable for a particular deal.

As a rule, lower loan amount should seek out a lower product fee. Higher loan amount may well be worth paying a high fee if a beneficial interest rate is on offer in return.

Also, just as a matter of interest, as I am one of the many trapped in a unsuitable fixed rate product that is too expensive to get out of

Why is it unsuitable? Are you saying that you shouldn't have been sold it? On what grounds is it unsuitable?

The lender said they'd fix the rate. The lent you the money at a fixed rate. Is it doing something different to what they said it would do?

are there any proper mortgages out there, without the merry-go-round of upfront fees

One or two. But most have up-front fees. You will typically find that lower fee = higher interest rate. You will typicall find that lower early repayment charges = higher arrangement fee and/or higher interest rates.

a fixed rate

Trackers. Discounts. Capped. All available.

and without expensive redemption penalty charges??

Most have these. Some don't. Lower fee = higher rate though.

See a whole of market mortgage adviser if you want mortgage advice.

Ms_Brush

I am 'trapped' because I am in year 2 of a 3 year fixed rate that I did sign up to and agree with at the time, and suited my circumstances as they were (newly divorced and in temporary employment). My circumstances have changed by re-commencing my career in the NHS and my recent marriage (so all for the better thankfully!). The mortgage rate and terms were suitable when the deal was taken out (before my husband moved in with me) and they are now unsuitable for where I am today (because we have plans we cant action while I have the consequenses of my existing mortgage for another year.)

Nonetheless, I accept this and have some ideas about what I do next - which I wont be sharing - cant be doing with a verbal battering for no good reason!

The killer for me (and probably lots of others) has been the change in the market, where prices have fallen a bit, impacting on LTV, which for me has meant that the drop in prices and the redemption fee pushes the LTV to 76%... from 64% and therefore little flexibility as things stand! So yes, I knew the deal - but I didnt have a crystal ball!!!!!!! I'm sure I wasnt alone there...

My question is just about me trying to understand what is going on in the mortgage market now. To me, there is something about understanding the consequences of the 'fixed rate' deals out there now - so I dont find myself in the same situation as I am in now in a few years time.

Maybe what I would like to find isnt out there any more - a basic flexible mortgage that allows me to overpay when I can (as my current mortgage does) but will also allow me to take advantage of rates coming down (by keeping the repayments the same as when they are higher to reduce capital - which my current morgage doesnt) which will help when it comes to rates going back up again, as I am convinced they will at some point.

From what has been said, the Banks are behaving in the same way as Ryanair in terms of their 'headline' cost being advertised, but the total cost is much higher and less clear. Makes me wonder - are the costs associated with a mortgage roughly the same across the board, but the advertisers cut and splice the figures to suit marketing campaigns?

Yes, I know that this is legal and standard practice these days, but is this morally right - not sure!

getmore4less

Ms_Brush wrote: »

Maybe what I would like to find isnt out there any more - a basic flexible mortgage that allows me to overpay when I can (as my current mortgage does) but will also allow me to take advantage of rates coming down (by keeping the repayments the same as when they are higher to reduce capital - which my current morgage doesnt) which will help when it comes to rates going back up again, as I am convinced they will at some point.

How about an offset?

Some now do fixed rates for a short period as well.

edit(a joke)

This time plan ahead for the next marriage.

benjo

Your current product isnt necessarily unsuitable, depending on the reasons you took it out (and thats an important thought to hang onto when you make your next decision).

If you wanted stability of payments, a buffer if mortgage rates rose horrendously then the product remains suitable since it continues to offer those things - the only pain here is the value of hindsight.... that interest rates went down and had you gambled on a non fix then you would have been financially better off - but like you say, you didnt have a crystal ball. Dont beat yourself up about the choice you made, it was probably made for very good reasons and 'might' have prevented alot of financial hardship if rates had gone the other way.

You might feel that you have 'lost' on this fix and I can see why, but dont let these highly unusual market conditions colour your future decisions - you wouldnt have felt trapped if you were fixed on 5% (example) and interest rates rose to 15%, it has happened in the past and Im sure it will happen again one day. (no crystal ball here I have no idea when or for how long).

So you seem to be asking for a mortgage that will allow you to overpay, most products allow overpayments, the minimum seems to be 10% of the outstanding balance per year upto unlimited - this choice is going to depend realistically on the size of your loan and how much you might be able to overpay (you dont give any details about loan size and income so only you can answer that). For example if you owned 250k and were tied into a 10% overpayment then you can only overpay 25k in the first year 22.5k in the second and so on - but thats still alot of money to most people. Do your sums, no point in worrying about unlimited overpayments on a 250k mortgage if you can only afford to overpay 10k a year anyway.

Also worth considering what SVR you revert to with your current lender at the end of the fix, might be worth sticking with that for a time and overpaying.

In terms of what is happening with fixes, they are higher now than they were in April despite the BoE rate being the same - so it isnt possible by just watching the BoE rate to predict what will happen to fixes, there are more factors involved. Fixes usually rise in advance of the BoE rate.

Regarding fees attached to products and how they affect your overall interest Opinions4u answered that perfectly.

Im not a mortgage advisor and I dont know if I have answered any of your questions, I took out a fix in April this year, could have saved hundreds of pounds had I took a tracker but my fix 'bought' me peace of mind for the next 5 years and that is worth alot of money to me.

Goodluck finding your next product.