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Product Fees.. whats your views?


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Hey guys,

 

Looking at options for BTL mortgages on a flat me and my partner are purchasing.

What are you views on product fees?

 

Have been offered at 1.94%+995 fee.

Am i better taking the mortgage with the fee and cash flowing better PCM or the higher rate and no fee and in the long run having a lower mortgage balance? (fees are added to the mortgage term)

 

This isnt something i could find much info on when i searched so would be good to hear some views..

 

Thanks,

 

Max

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All the mortgage lenders are borrowing money from the same market so they are all paying the same - they just package it differently!

I recommend looking at the total cost for 5 years and then comparing - you will find generally the low rate mortgage has a higher product fee and vice versa.

I like lifetime trackers, so I don't have to remortgage, but the rates have gone up quite a bit for these. Generally, I think you should lock in for as long as you are comfortable otherwise remortgaging (and associated fees) come round quite quickly!

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As Julia says, the products are pitched by lenders with high fees counter to low rates and vice versa.

From my perspective as a broker i simply look at which deals will cost you the least amount of money during the fixed period, ultimately it doesent really matter to me if you pay that cost in interest or fees and in which proportions, its all money you are handing over eventually and my job is to find the cheapest overall way of getting the money you need.

Bear in mind that adding the fee, means paying interest on the fee for the duration of the fixed period, and then when you remortgage paying interest on that extra balance for the lifetime of the mortgage. The effect of compounding goes both ways and so by constantly adding fees, the total cost of this extra interest can add up significantly over the years.

If you have a broker, they should be able to tell you what the cost is over the fixed period of going with a fee free deal so you can see if theres a significant difference. Having some real numbers to hand might help illuminate what extra you pay for avoiding the initial outlay (paying the fee upfront) versus adding it to the loan, versus taking a higher rate in return for no fee.

043_logo_final_03.png.0cdf828351f81e6097208048ac2d018d.pngStuart Phillips

Independent, Whole of Market Mortgage Broker

AALTO Mortgages Ltd

Web  www.aaltomortgages.com

Email  sales@aaltomortgages.com

Call  020 7183 1101

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On 6/28/2021 at 8:52 AM, Stuart Phillips said:

As Julia says, the products are pitched by lenders with high fees counter to low rates and vice versa.

From my perspective as a broker i simply look at which deals will cost you the least amount of money during the fixed period, ultimately it doesent really matter to me if you pay that cost in interest or fees and in which proportions, its all money you are handing over eventually and my job is to find the cheapest overall way of getting the money you need.

Bear in mind that adding the fee, means paying interest on the fee for the duration of the fixed period, and then when you remortgage paying interest on that extra balance for the lifetime of the mortgage. The effect of compounding goes both ways and so by constantly adding fees, the total cost of this extra interest can add up significantly over the years.

If you have a broker, they should be able to tell you what the cost is over the fixed period of going with a fee free deal so you can see if theres a significant difference. Having some real numbers to hand might help illuminate what extra you pay for avoiding the initial outlay (paying the fee upfront) versus adding it to the loan, versus taking a higher rate in return for no fee.

Hi Stuart, Thanks for your reply.

We are looking at 150,000 borrowing.

Options are;

2 year fixed rate with TSB at 2.84% with no fees and a free mortgage valuation. This works out at £355.00 a month

OR

1.87% 2 year fixed rate with a £700.00 product fee and a £299.00 application fee which has to be paid upfront. The valuation fee is free. Works at £243pcm+fees. Or 284pcm when the 995 is added in over the 2 year fixed term.

OR

5 Year fix at 2.27% which will cost £283.75 approximately.

 

From where i'm sitting i'm swaying towards the 5 or 2 year +fees. And pay the fee upfront, not add to the mortgage? Think it bascially comes down to wether we want to remortgage sooner rather than later..

Any opinions would be much appreciated, incase i am missing something?

 

 

Thanks

 

 

 

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  • 1 month later...

It's a case of doing the maths over a set period of time.

Oddly enough I've decrease my company debt costs by taking finance out on my private BTL's then lending it to the company.

That is only able if you've been in the market for a while and got some equity in your proeprty. 

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