Size key the key for mortgages deals

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Size key the key for mortgages deals

Wed 5th Jan 2005

It is the size of the loan, and not the interest rate, that is the determining factor in getting the best value mortgage, Charcol has claimed.

The mortgage industry has become far more competitive recently, as Bank of England interest rates stagnate and the property market cools, with the main focus of many deals the low rate of interest they are charging.

But independent mortgage broker Charcol today pointed out that a low rate does not necessarily mean good value.

"Many people who are arranging a new mortgage make the mistake of focusing just on the rate, or just on the up-front fees, without considering the size of their borrowing," commented Elliot Nathan, product development manager at Charcol.

Charcol pointed out that large fees, either charged up-front or added to the cost of the mortgage, can undermine the benefits a low interest rate.

"In general terms, those with a large mortgage should look for lower rates, while those with smaller loans should be more influenced by fees. That said, there is certainly no definitive answer, so if borrowers are unsure of which way to go, they should seek advice," Mr Nathan added.

Along with fees and interest rates, lock-in periods, early repayment charges, and the method of interest calculation can all affect the cost of a mortgage.

"For some time now, we have warned against borrowers taking very low rates that have extended redemption penalties, but it is not just these deals that borrowers need to be wary of. Doing your sums on all types of loan, even if they look competitive at first glance, is very important to ensure you get the very best value from a mortgage," Mr Nathan said.

Charcol offers the example of two mortgages, one with a fee and one without.

For a £100,000 mortgage the Co-op's two-year discount mortgage, with a rate of 4.94 per cent and a £399 fee, is more expensive over the period of the discount than a Woolwich two-year discount deal with a higher rate of 5.1 9 per cent but no fee.

However, for a £125,000 mortgage the Co-op's lower rate makes it the cheaper product over the first two years.

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