Secured Loan or Re-mortgage, The Balance of Power.
It’s been a sad fact that application fees on fixed rate mortgage deals have more or less doubled in the last 12 months according to current research.
During the last 12 months the five most competitive two year fixed deals’ fees have increased from 998 to 1,500. Three year fixed deals’ fees have also increased from 575 to over 1,100.
If you go back to last October when the base rate was 5.75% the average two year fixed deal was at 5.68%. The base rate is now 5% but the 2 year rate is still 5.57%. Three year fixed rate deals are also more expensive compared to the base rate. They’ve gone down from 5.84% to 5.65% in the same period.
All the current publicity recently about the credit crunch and the bank’s fluidity problems has stoked the near panic in people and they’re tempted to grab the best percentage rate deal they can find. The problem is that very often they overlook the fees which when added to the 2 or 3 year deal make the mortgage a lot more costly than it first seems.
The huge increase in application fees means that they now form a much more significant portion of the cost of the loan and really need to be considered just as importantly as the actual interest rate, especially in a relatively short term mortgage deal.
There are still many good deals out there for people with substantial deposits or equity in their home and strong credit ratings. Unfortunately many people will not be eligible for them as lenders are increasingly taking a tougher line.
All brokers and intermediaries should reconsider their strategy in helping clients wishing to raise capital in the light of the recent credit crisis and changes to the Consumer Credit Act. The changes in the market and to the Consumer Credit Act mean that a secured loan could be a much better option for many clients.
All secured loans for any residential purposes, under the new legislation, now come under the Consumer Credit Act. This means the client has to have a compulsory cooling off period. This has obvious advantages in that the client doesn’t feel under such pressure. If you also think about that with a secured loan there’s no valuation fee, no conveyancing and no booking or application fees it’s pretty obvious that secured loans are a much superior option in some cases than re-mortgaging. Even early repayment charges have a ceiling of two months interest (depending on when in the month the borrower informs the lender).
The whole point here is that if you are tied in to your current mortgage provider, in some cases even if you’re not, and wish to raise some money or simply restructure some finances then consider a secured loan as an substitute to a re-mortgage. The protection of the Consumer Credit Act and also the saving of the upfront fees and the much smaller early repayment charges mean that a secured loan could be much easier to arrange and quite a lot cheaper.
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