How mortgage advisers can help you find the best mortgage
Fingers on buzzers and no conferring.
You have a choice of two mortgages; we’ll call them Mortgage A and Mortgage B. Both are offered by the same lender and are almost identical - except Mortgage B will give you £1,000 cash-back.
Which one do you choose?
It’s a no-brainer. You’re obviously going to buzz for B - the deal which puts £1,000 in your back pocket.
And uh-uh! Sorry, that might be the wrong answer.
Because it’s a trick question.
Mortgage B comes with a £999 arrangement fee. Mortgage A has no such charge.
Arrangement fees are usually added onto the amount you borrow and are paid back - with interest - over the lifetime of the loan. In this case, that £999 fee - on a 30-year, £70,000 mortgage - will cost you £1,700.
Mortgage B - even with its £1,000 cash-back - will effectively cost £700 more in the long term than Mortgage A.
Banks and building societies have always given things away to get your business. The difference now is they’ve got better at it. Gone are the days of courtesy pencil cases and free Griffin-branded school bags.
Inducements recently offered by lenders include “free” iPad Minis, offering up to £2,500 to pay a borrower’s council tax for a year and giving up to £3,000 cash-back.
Before signing on the dotted line, it pays to remember “there is no such thing as a free lunch”, says mortgage expert Helen Crowther-Dowey.
If a lender is offering something really shiny and expensive they will often claw the cost back through higher rates or arrangement fees, explains Helen, a Mortgage and Protection Adviser for Nottingham Mortgage Services.
Before being tempted by a free iPad or a free year of council tax, you need to sit down and work out how much that mortgage is going to cost in real terms. Are there other deals out there - with better rates - that could save you more? Is that mortgage right for your particular circumstances - both now and going forward? Those are the things you need to seriously consider, advises Helen.
“You need to look at the overall costings,” she says. “If you’re tight on funds, getting £1,000 upfront might be perfect. It could help you with your legal fees and moving costs. It could be that little bit of extra money you need to help you move.
“If you’re just going to spend that £1,000 on a new sofa or TV, it makes less sense. There is probably another deal out there with no arrangement fee and a better rate that will save you money, month in, month out, for years.
“You need to be aware. Nothing in life is ever free.”
If you’re a first time buyer or thinking about remortgaging then why not talk to our mortgage advisers before you make the move. You can book an appointment with Helen by calling 0115 932 4143 or call our Mortgage and Protection Advisers on 0344 481 0013.