Calculating the True Cost of your Mortgage
10 May 2009 Tell a Friend
A new home is likely to be the most expensive purchase that most of us make. In the current economic climate, lenders are reluctant to lend more than a maximum of 90 per cent of the value of the property, so the upfront costs are already higher than they have been in recent years. However, there are a number of 'hidden' costs that you need to consider as well, as buying a property is a complicated legal process requiring the involvement of various experts, including a surveyor, solicitor and conveyancer. This article details the main additional costs you will encounter when purchasing a property.
Always read the small print on the mortgage rates
Although tighter controls have been imposed on consumer lending in the last few years, competition to attract new mortgage business is still fierce, and therefore lenders publish what seem at first glance to be extremely low rates. However, these introductory rates will only last for several years, after which time the rate will rise significantly. Therefore it is important to calculate the interest that you will pay as an average of your initial low rate and the remaining repayment period. Also make sure that you are aware of any 'early redemption penalties' should you be in a position to repay your mortgage early, or any fees incurred if you want to move to a different lender after the introductory period.
Arrangement fees
There are other factors to take into consideration when calculating the actual cost of your mortgage. Is your mortgage broker charging an arrangement fee? This will typically be a percentage of the sum borrowed, although it could also be a flat fee. Not all mortgage brokers will charge you an arrangement fee as they get paid an introduction fee by the lender, but it is fairly common so make sure you ask them for full fee details before proceeding with the mortgage.
Valuation fees
A full property valuation is usually required by a mortgage lender before they will approve your application. This enables them to confirm the property's worth, something that is particularly important in the current financial climate when millions of consumers have seen the value of their property fall. Lenders sometimes foot the bill for the valuation themselves, although the cost usually falls on the consumer, and you should expect to pay between £100-200 for this service. An extra point to check with your broker or lender is whether the valuation fee is refundable in the event that your mortgage application is refused.
Surveying fees
It is important to have the property surveyed before you go ahead with the purchase, to protect yourself from making an unwise investment. There are two types of survey, the homebuyer's report and a full structural survey. The homebuyer's report is a more basic survey, costing about £300 and often included for free in the lender's service. This includes a check of the superficial condition of the house, making sure that there are no obvious faults.