Borrowers who fixate on the interest rate of their mortgage are more likely to be hit with thousands of pounds worth of unexpected costs, Legal & General is warning.
When looking for a mortgage deal, many people simply focus on the headline rate but ignore other factors such as the exit fees, new research has found.
In fact, according to the study by Legal & General Mortgage Club, which helps mortgage brokers access lenders on behalf of clients, nearly two thirds (63%) of borrowers view the interest rate as the most important factor in deciding their next mortgage.
But, L&G’s analysis found they are completely overlooking the extra costs they could incur if they wish to move to a new product before their existing fixed term ends.
As such, L&G is urging people to look carefully at details such as early repayment charges (ERC) or ‘exit fees’ when they come to remortgage or switch to a new deal.
Its analysis found a borrower who locks into a five-year fixed rate product and then decides to move or remortgage could face £10,891 in ERCs.
Yet, only 13% of borrowers see ERCs as being important to consider when getting their next mortgage.
Reducing bills
Kevin Roberts of Legal & General Mortgage Club said: “The crisis has taken its toll on the finances of people across the UK and many are now looking for ways to keep their household bills to a minimum.
“A great place to start is with a mortgage as this is normally people’s biggest monthly expense. So, reducing its interest rate down can only be a good thing, right?
“Well, our latest research shows why it is also important to look beyond the headline rate and consider other factors, like exit charges. Not doing so could mean having to pay thousands in unexpected costs when it comes time to move home or remortgage.”
How to find the best deal?
Kevin’s top tip for anyone looking for a new mortgage, is to work with an independent adviser.
“Whether searching for a low-interest option, or a product which provides more repayment flexibility, it is worth seeking advice,” he said.
“Doing so will mean access to a larger range of mortgage options and these professionals can also recommend specific options based on your individual circumstances.”
