by Gary Webber
24. September 2009 13:53
What you save on fees, you'll more than repay in interest
Be careful if you're tempted by one of the no-fee deals being introduced this week by Northern Rock.
Of course, they're appealing to borrowers who have been put off by the need to pay at least £900 up front for other typical offers out there. Many of us simply don't have that in spare cash.
But Northern Rock is no chump when it comes to profits: it increases its rates by up to a whole 1% in return for cutting out that fee. That's the kind of interest rate premium that could leave you cursing your pocket calculator in a year or two's time.
Facts on the new deals are as follows. If you took out one of the new 2-year fixed rate deals, your options are:
- 4.09 per cent fixed until 2011 with a £995 fee, or
- 5.09 per cent fixed until 2011 without the fee.
So you'll save yourself nearly a grand today. But 1% interest on a £100,000 mortgage is £1,000 a year anyway--not counting compounding, i.e. interest on top of interest. It doesn't take a maths whizz to demonstrate that this mortgage will cost you double what it saves you over the two-year fixed period.
If you're after low fees, try something rarer perhaps — for example, a discounted variable 2-year deal from Market Harborough Building Society (up to 75% LTV) costs only £245 in fees.
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