No-one wants to pay more for their mortgage than they must. And, on a large mortgage, it is more important than ever to seek out the very best deal. Finding even a slightly better interest rate can save money on a large mortgage – from hundreds to thousands of pounds.
It may seem counter intuitive to suggest that paying a high fee can be the route to a great value home loan. However, that’s the advice that a leading high net worth finance expert regularly provides his clients. So, how can substantial up-front charges possibly represent the best advice?
The overall cost of a mortgage
When searching for the most suitable home loan, good mortgage brokers will always take both the interest rate and any associated fees and charges into account when making a recommendation. And it’s the balance between these two factors that is key to getting the best deal.
Islay Robinson, director of London mortgage broker Enness Private Clients, explains: “When choosing a new mortgage it’s easy to open a Sunday newspaper and simply look for the lowest fee-free deal. Clients can be sure that they’re not paying unnecessary charges and that they’re getting a competitive rate.
“However, high net worth clients can often benefit from speaking to a broker first. Paying a fee for a mortgage deal can often result in significant savings.”
How to save money on a large mortgage
Consider the overall cost of a £750,000 interest only mortgage on two competing fixed rates. A 3.99% deal with a £599 arrangement fee would result in monthly payments of £2,493.75. Over 36 months this totals £89,775 and, adding the £599 fee, results in a total three year cost of £90,374.
However, a 3.75% fixed rate deal with an arrangement fee of £2,499 – a significantly higher up-front cost – results in monthly repayments of £2,343.75. Over 36 months this totals £84,375 and, adding the £2,499 fee, results in a total three year cost of £86,874.
Mr Robinson adds: “In this example, many clients would be put off by the £2,499 fee associated with the second deal. However, over a three year period it actually results in savings of £3,500.
“This is why I always suggest to clients that it is worth considering both the interest rate and any associated fees. On smaller mortgages it can often be beneficial to pay a higher interest rate to benefit from a lower fee.
“However, on a high value mortgage, savvy clients understand that paying substantial fees can result in significant medium to long term savings.”