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Wednesday, 01 October 2014

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Mortgage deals helping housing market

What will the year have in store for us? Perhaps for some things it's best not to know, but at the start of  2012 your thoughts may well turn to moving home. Even though it is still early January, the housing market appears to be fairly active and there are some good mortgage deals available. 

While it would be foolish to try and predict if it is a good time to move, it is worth looking at the mortgage market to see what you should be considering.

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 tracker rate deal. Over the last few months there have been some excellent fixed rate and tracker deals on the market. It is still uncertain as to when (and it is when rather than if) there will be an increase in the Bank of England base rate, so there is no guarantee of how long some of the rates that we are currently seeing will be around. But if you are shopping around, the interest rate is only one of the factors you should consider.

Many fixed rate or tracker deals 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 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 2.28 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 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 in 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. But 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 interest rates and arrangement fees.

As always, the key to securing the most appropriate mortgage is to keep asking questions.

  • To find out more about the Cumberland’s current range of fixed and tracker 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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