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Mortgage holders should be wary when they get calls from zealous brokers who offer discounts on their mortgage repayments if they refinance the loan used to purchase their property.
The pitch is usually attractive. Homeowners will cut their monthly payments for a couple of years if they remortgage. And the lenders often proposed by these brokers are reputable, including the likes of Nationwide and Northern Rock.
But be careful – brokers often tack on additional fees of £500 to £3,000 for “administration” and sometimes they don’t spend much time talking about these additional costs. These fees can range from 1 to 10 per cent of the total cost of the remortgage amount. Sometimes, the term of the loan can also be increased to enhance what appears to be the savings mortgage holders are getting each month.
Another risk is that clients can save money for one or two years and then, when the interest rate deal comes to an end, their repayments can go up sharply, partly because administration costs for the switch are added to the remortgage. Often the details of the extra fees are written in the fine-print.
“Can you afford not to try out Loanspage.co.uk ... cost free ... risk free?,” states the homepage of Loanspage.co.uk, an online mortgage broker. At the bottom of the page, viewers who scrolled down were informed that “adding existing debts to their mortgage” would both extend the repayment term and increase the overall cost of the debt”. “Fees will depend on your circumstances, an indication is £1,995. Early repayment charges will apply,” the warning continues. Dreams of Freedom, the company that operates Loanspage.co.uk, could not be reached for comment.
“People just do not understand the implications of what is going on here, they are being carved up,” says one financial adviser.
If you are looking to remortgage you should be able to secure a deal through a broker for two or three hundred pounds or even less. Some lenders such as Nationwide offer remortgage services that are free.
Most lenders already pay brokers a commission of about 0.3 to 0.4 per cent of the loan amount on mortgage deals.