OMG! £2600 arrangement fee!!!!!

kingychapman

no matter whether this deal is good or bad for different levels of borrowing, the point here is its confusing for people to work out, its smoke and mirrors, lenders hope we will go with them for the headline rate and re the arrangement fee, in a lot of cases they will tell you not to worry and add it to the loan, plus all other fees, even the fee payable to the broker. I am sure there are reputable brokers out there that will explain all of this to the client, but there are some that won't. And some individuals wont read the key features in detail, you could say its their fault then - but not everyone is as great at dealing with their paperwork.

Milky_Mocha

I've had this discussion with my broker before and after doing a few sums I realised that I was better off going with the product that had the higher fees (just over £4k!) than the product with £800 fees. My next question, which I was tempted to post on here for opinions but didn't at the time, is that if I decide to pay this upfront instead of adding it to the mortgage would I be better off, i.e. avoid paying interest on 4k over 3 years (or 25 years as the case may be)? Presumably, yes. If on the other hand I add it to the mortgage does it mean that when I remortgage in 3 years' time then I'll owe the lender the balance? Presumably, as its an arrangement fee this cannot be added on to the new mortgage when I remortgage with another lender.

I subsequently decided to add it to the mortgage as it made almost no difference to the monthly payments.

Mr_helpful

When you add the fee to the loan you have a larger mortgage in your case just over 4K larger. Assuming you have a repayment mortgage you will find very little capital is paid off in the early years so when you remortgage in 3 yrs time the majority of that fee will still be there and carried over to the new lender plus any fee then so you will pay for the fees for the full term that you have the mortgage. If you pay upfront dont forget that that money is out of your nice high interest account or even cash ISA and so you are losing the interest on it for the term of the mortgage. given the fact that it is there to cover up the true rate of borrowing its nice to know so many brokers are happy with the transparency of fees because most of them only calculate over the benefit period. I can see massive claims coming against them in a few years

jamesd

kingychapman, the US buying system points is more transparent, so it might be a good idea here as well. Trouble is, people recently have ended up choosing to buy points when they shouldn't, then losing out when they moved home and needed a new mortgage in less than the payback time for the points they bought.

Milky_Mocha, better to add it to the mortgage if you are making a higher interest rate on savings or return on investments. Otherwise better to pay up-front.

dunstonh

I am sure there are reputable brokers out there that will explain all of this to the client, but there are some that won't. And some individuals wont read the key features in detail, you could say its their fault then - but not everyone is as great at dealing with their paperwork.

Which is why the KFI exists. It is probably the single most important document that the FSA have created. A simple document explaining the costs and terms.

After that you also get the offer letter. Many people still use the solicitor with the offer letter and the solicitor will also explain the terms. If someone chooses not to read the documentation that is supplied in advance and chooses not to use a solicitor before entering into what is probably the biggest transaction of their life then they really have no-one else to blame other than themselves for their actions.

If you know what you are doing, you can do DIY. If you dont know what you are doing you can still do DIY but risk making a pigs ear of it or you can get someone in that can do it for you. It is no different to any other profession.

ManAtHome

But as I'm sure you've come across DH, people will spend days getting an extra quid off an iPod, and about 30 seconds signing up for a £200k loan...

danjberry

Milky_Mocha wrote:

I've had this discussion with my broker before and after doing a few sums I realised that I was better off going with the product that had the higher fees (just over £4k!) than the product with £800 fees..

this is what some people are missing here. if we did not have this choice you would be worse off. The fact we have this choice benefits all. those who are better off paying small/no fees and those who are better off paying them, and with this choice both are happy.

But then some people will insist on not taking professsional advice and end up worse off then blame the fact that the fees were not clear when they have a KFI and offer!!!!!! then people want to scrap the fees, so then Mily mocha, and many many many many others, will be worse off. And as has been said the product in question does not have redemption penalties so has this fee attached.

Mr_helpful

Trouble is Dan that she may have discussed with broker but has broker really given accurate info about the fees because he does not appear to have looked at the true long term implications.
Some years ago there was a very nasty mortgages called a deferred interest mortgage which rolled interest into capital to keep monthly payments affordable. These mortgages are now non existent because eventually people woke up to how bad they were. Now these mortgages with very high fees are the modern equivalent of the deferred interest mortgage.
How on earth can masking the true interest rate of a product in such a way that brokers dont understand it be good for people or make them better off?

EdInvestor

Does this product mark a switch from flat rate to percentage-based mortgage fees?That would be a big concern if so.

toonfish

EdInvestor wrote:

Does this product mark a switch from flat rate to percentage-based mortgage fees?That would be a big concern if so.

A lot of them are already % based