Check all the fees before you switch your mortgage

Published 18th Nov 2009

Around 30,000 homeowners a month are faced with a tough decision over whether to move on to their bank's standard rate when a special deal finishes.

Bank and building society standard variable rates have plunged to historically low levels.

New fixed, tracker and discount deals have recently been slashed as banks and building societies seek to compete with Northern Rock, which itself is desperate to lend to homeowners.

However, borrowers should look beyond the headline interest rate and add in all the fees before deciding whether to switch.

Start by checking what you are being charged. Lloyds TSB and Nationwide have the lowest SVRs at 2.5 per cent. Mortgage repayments on a typical £150,000 would be £673 a month - total £16,128 over the next two years if rates remain unchanged.

Bristol & West charges 2.99 per cent; Halifax/Bank of Scotland 3.5 per cent; HSBC 3.94 per cent, and Abbey 4.24 per cent. Most building societies charge more with Chesham BS the highest at 6.45 per cent. This puts monthly payments at £1,008 on a £150,000 loan; £24,192 over two years

Weigh up the total cost of the deals. For example, First Direct's two-year fixed at 3.69 per cent looks cheaper than HSBC's 3.94 per cent SVR.

First Direct has repayments on a typical £150,000 loan of £767, HSBC SVR repayments would be £787. But the £498 fee you have to stump up to get the First Direct deal means it is actually £300 more expensive over two years.

The same is true of the Principality BS (4.09 per cent), which appears in our Best Buys table. It is lower than Abbey's SVR of 4.24 per cent, but the fees mean Abbey borrowers would be better off staying put. Total repayments on their existing loan would be £19,488 whereas Principality-would cost £19,681. However, if you opt to stay on SVR you may want to move on to a fixed deal if rates start to rise. But by then the cost of fixed and discount deals may have risen too.

An alternative option is a tracker loan. Trackers are guaranteed to move in line with any changes, while lenders can do what they like with an SVR - so if the base rate increased by 0.5 percentage points, your lender could put up your SVR by 0.75 points. And with the rates on the best two-year trackers 1 percentage point below that of two-year fixed rates these variable deals look very attractive.

Northern Rock's two-year tracker for those with a 30 per cent deposit is 2.09 points over base rate (starting rate 2.59 per cent). There is a £595 fee for buyers, and £995 fee for those remortgaging.

Initial repayments on a typical £150,000 loan would be £680 a month and total cost over two years would be £16,915 for buyers, and £17,315 for remortgagers - assuming the base rate stays the same.

Also worth considering are Abbey at 2.69 per cent (2.19 points over base) and ING Direct at 2.79 per cent (2.29 points over base). What you lose by moving on to most new deals is flexibility: the option to overpay as much of your mortgage whenever you want.

HSBC has two lifetime trackers, where you can overpay what you want. With a 40 per cent deposit you can get a rate of 2.74 per cent with a £999 fee - giving a total cost £17,583 - and with a 25 per cent deposit a rate of 3.04 per cent - total cost £18,135.

But again, these are more expensive than sticking with the SVRs of Lloyds, Nationwide, Bristol & West, and for the higher rate deal, Halifax.

Source: ' Daily Mail '

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