Beware of cheap mortgages
February 12th, 2009A cheap mortgage…check the small print
New mortgage deals may come with unexpected high costs for those who do not read the small print.
Some banks are now offering a cheap fix rate for a year, this may come as a great offer for customers, what they’re not realising is that they will be switched to a tracker rate at a high premium over base rate.
Here’s an extract from a FT article published on 10 February:
Leeds Building Society, for example, has launched a one-year fixed rate of 3.79 per cent, which is followed by a two-year tracker at 2.5 per cent over base rate. This looks good value with base rate at its current low level but there is a danger that borrowers will be stuck on this deal as rates rise. There are high charges to switch out at any time within the first three years.”
Borrowers taking on relatively high loan-to-values could be better off with longer-term deals of, say, five years.
This would cover any potential further fall in value over the next year or so, which would make it difficult to remortgage in two years’ time.
So beware of the so called ‘cheap mortgage deals’ as they aren’t as cheap as they might appear once you check the small print or don’t keep up with repayments.
