Mortgages. Exit Fees To Be Capped.
Below is a MRR and PLR article in category Finance -> subcategory Mortgage.
Mortgages: Exit Fees to Be Capped
Summary
Over the past few years, exit fees charged by lenders when borrowers redeem their mortgages have surged by up to 450%. Fortunately, the Financial Services Authority (FSA) plans to address these increases.
Lenders inform new borrowers of the current exit fees but keep the right to raise these fees without notice. This flexibility has led many lenders to increase fees significantly. For instance, the Woolwich increased its fee from £95 to £275, while Cheltenham & Gloucester raised theirs from £50 to £225. These hikes seem aimed at those who frequently switch mortgages to secure better rates, also known as "rate tarts," while boosting lenders’ profits.
Now, the FSA is negotiating with mortgage lenders to regulate this practice. The goal is to have fees fully disclosed upfront and fixed for the mortgage’s duration, with an agreement expected by June.
Key Considerations for Borrowers
When evaluating mortgages, borrowers should consider all charges and offers to determine the most cost-effective option.
For example, consider a 2-year fixed rate mortgage from Northern Rock and Halifax. Northern Rock offers a 4.19% interest rate with a 1.5% arrangement fee and a £250 exit fee. Halifax provides a 4.39% interest rate with a £499 arrangement fee and a £175 exit fee, along with free valuation and conveyancing, potentially saving £750.
Comparing a £100,000, 25-year repayment mortgage with redemption at the end of two years, Northern Rock costs £14,671, while Halifax is £13,864?"£807 cheaper. This doesn’t include the additional £750 savings from Halifax’s package. Thus, despite Halifax’s higher interest rate, it ends up being the more affordable choice.
Another cost factor is whether interest is charged daily, monthly, or annually. Annual interest calculations can be more expensive as you pay interest on repaid amounts for most of the year.
Final Advice
Always read the fine print carefully. Be aware of the various terms used for fees, such as application, arrangement, reservation, booking, completion, and early redemption. Stay vigilant!
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