Don’t fall for “fee-free” mortgages

A growing number of mortgage lenders are scrapping arrangement fees to lure in borrowers. But do the sums first, says Emma Lunn.

911-teacher-634

She can now borrow 5.5 times her income to buy an overpriced house
(Image credit: Klaus Vedfelt)

A growing number of mortgage lenders are scrapping arrangement fees to lure in borrowers. Around 40% of available mortgage deals in July 2018 came with no fees, according to data provider Moneyfacts. This is up from 36% in July 2017, and 33% in July 2016. However, if you're tempted by a fee-free mortgage, it's important to sit down to work out the numbers, as the lack of upfront costs could actually mask a higher interest rate. To compare deals accurately, you need to look at the total costs over the fixed term of the mortgage so two years if you're opting for a two-year fixed rate, or five years for a five-year fixed rate. Some borrowers may find they are better off paying a fee for a lower rate.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free
https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up
Emma Lunn

Emma Lunn is a multi-award-winning journalist who specialises in personal finance and consumer issues. With more than 18 years’ experience in personal finance, Emma has covered topics including mortgages, first-time buyers, leasehold, banking, debt, budgeting, broadband, energy, pensions and investments. Emma’s one of the most prolific freelance personal finance journalists with a back catalogue of work in newspapers such as The Guardian, The Independent, The Daily Telegraph, the Mail on Sunday and the Mirror. As a freelancer she has also completed various in-house contracts at The Guardian, The Independent, Mortgage Solutions, Orange and Moneywise. 

She also writes regularly for specialist magazines and websites such as Property Hub, Mortgage Strategy and YourMoney.com. She’s particularly proud of her work writing about the leasehold sector and a Guardian front-page story about a dodgy landlord. She has a real passion for helping people learn about money – especially when many people are struggling to get by in today’s challenging economic climate – and prides herself on simplifying complex subjects.