Borrowers hoping to take advantage of sub-5% mortgage rates may be hit by high fee costs, according to mform.co.uk.
Lower swap rates, the rates at which lenders borrow to fund their fixed rate deals, have allowed many mortgage providers to provide cheap fixed-rate deals, with 24 of the 200 best deals now priced at 5.75% or lower and some going as low as 4.99%.
However, mform.co.uk says the high fees that low-rate deals carry can often make high-rate deals more cost effective over a two-year period.
Francis Ghiloni, marketing and business development director at mform.co.uk, comments: “Lower headline rates do not necessarily mean lower costs for borrowers. Some of the low initial APRs are only made possible by high upfront fees. Borrowers need to focus on the true cost of their loan.”
Ghiloni highlights two Cheltenham & Gloucester two-year fixed-rate deals, one priced at 5.29% and another at 6.33%. Based on borrowing of £150,000, the true cost of the 6.33% deal over two years is £18,689, due to a low £99 fee. The 5.29 deal has a fee of £4,249, pushing the total cost to £20,119, despite monthly payments being £130 less.
Ghiloni adds: “Many lenders are now offering loans where the fees are based on the size of the advance. Borrowers need to be rate smart when comparing mortgages.”
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