Massive jump in number of fee-free mortgages
The number of fee-free mortgages on offer has quadrupled in the last five years, according to financial data provider Moneyfacts.
There are currently 902 of these mortgages available, up from 220 in 2010. They now make up a quarter of the market.
What are fee-free mortgages?
Most mortgage deals come with a mortgage or arrangement fee, which in some cases can add thousands of pounds to the cost of your mortgage. They can be paid all in one go, or added to your mortgage debt, though with the latter you will then pay interest on it.
The beauty of fee-free mortgages is that, as the name suggests, they don't charge these exorbitant fees. However, you will tend to pay a higher rate of interest on a fee-free mortgage.
Notice the difference
But do you really save with a fee-free mortgage? Let's put it to the test.
If you want a two-year fixed rate mortgage with a 25% deposit, the best rate currently comes from Post Office Money at just 1.19%. But it comes with a mighty arrangement fee of £1,995. On a £200,000 mortgage over 25 years, you are looking at monthly repayments of £775. Over the fixed term, and with the fee on top, you will pay £20,595.
Post Office Money also offers the best fee-free mortgage, with a rate of 1.79%. Your monthly repayments rise to £833, so over the fixed term it will set you back £19,992. That's a saving of £603.
What about five-year fixed rates? The smallest rate around comes from Chelsea Building Society, at 2.44%, though with a £1,675 fee. Using our same mortgage as above, that means monthly repayments of £894. Over the five-year fixed period, and with the fee on top, it will cost £55,315.
Norwich & Peterborough Building Society offers the best fee-free alternative, with a rate of 2.64%. That means monthly repayments of £919, costing you £55,140 over five years. Again it comes out slightly cheaper.
When looking at mortgages, remember to treat it as a whole package, taking rate, fees and your individual needs into account.
Breaking down the jargon
If you're confused about what different mortgage fees mean, let us help you out.
Arrangement fee: Also known as the product fee or completion fee, it's what you're charged for the mortgage product itself. It'll increase the amount you owe, your interest and your monthly payments.
Booking fee: A booking fee is sometimes charged when you apply for a mortgage deal and isn't normally refundable, even if your mortgage falls through. Some providers will include it in the arrangement fee, while others add it on depending on the size of your mortgage.
Early repayment charge: These charges typically sit at 1%-5% of the value of the early repayment and covers lender costs if you repay all or part of your mortgage earlier than the agreed period. So with a three-year fixed rate mortgage, it will apply for the first three years, for example.
Mortgage account fee: The covers costs in setting up, maintaining and closing your mortgage. If you've paid this, you probably won't be charged an exit fee but may still be subject to an early repayment charge.
Valuation fee: This pays for your lender's survey on the house you want to buy. It's a basic survey which checks if the property is adequate security for the loan. The cost can vary wildly and some lenders will even give you one for free.
