The Fixer: Mortgage rate dilemma

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The Fixer logoHave you been left out of pocket due to poor service or sharp practice? Do you have a money problem that won't go away?

It can seem impossible to get a fair result when you are battling a financial issue alone. But never fear! The AOL Money Fixer is here to help.

Dear Fixer,
I am writing to you for advice because I am not sure that I should trust the advice I am getting from my mortgage broker.

Basically, I need to remortgage and was therefore very pleased to see that HSBC had released a two-year fixed-rate deal at just 1.99%.

I thought this rate would be hard to beat, but I called my mortgage broker to find out if he could find me a better deal - just in case.

As I expected, the rates he found for me were higher, but he nevertheless told me that the HSBC deal - which can only be taken out directly through the bank - would work out more expensive than the cheapest of the two-year deals he had found.

I have always had a good relationship with my broker in the past, but I can't help wondering whether he only wants me to go for this other deal because he will lose my business if I go for the HSBC mortgage.

Am I right to be suspicious? How can a mortgage with an interest rate of almost 3% be cheaper than one charging interest of 1.99%?

G Judge, Coventry

Dear Mr Judge,

When you are comparing mortgages, you need to do so on a total cost basis. This means adding together the interest you will pay over the term - in this case two years - and the upfront costs.

While HSBC's fixed rate of less than 2% may look appealing, it is therefore worth noting that the deal also comes with a whopping arrangement fee of of £1,999 (or £1,499 for HSBC current account customers).

Consequently, while it is true that mortgage brokers, like all people trying to sell you something, are not always to be trusted, your broker could in fact be telling you the truth about the mortgage he has found - despite its higher interest rate.

Whether the HSBC deal is right for you will therefore depend on the size of the mortgage you need.

Say you need to borrow £100,000 on a £300,000 home, figures from comparison website MoneySupermarket indicate that a West Bromwich Building Society mortgage would work out cheaper over two years - despite charging 3.69% - due to its smaller arrangement fee.

If, on the other hand, you need to borrow £250,000 as a remortgage on a property worth £600,000, the HSBC deal at 1.99% is the clear winner at a total cost of £27,896 over two years compared to £29,700 with West Bromwich.

Either way, it is definitely worth asking your broker to send you the figures showing why he advises not going for the HSBC deal.

The Fixer

Whatever your financial problem, write to themoneyfixer@aim.com and The AOL Money Fixer will get on the case.
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