COMMENT
Beware Of Creeping Mortgage Fees

We all know that we can potentially save a lot of money from a good re-mortgage deal. A 1% reduction in interest rate can save you several hundreds of pounds a year on a typical mortgage. This is why so many of us will happily spend hours searching out the most competitive deal, each time we come to re-mortgage.

Lenders, of course, would prefer that you stayed with them after your initial period ends, as they can make money by switching you to their Standard Variable Rate (ca. 6.75% at the moment).

To do this, they often charge those wishing to move provider a 'Mortgage Redemption fee' or 'exit fee' (a discharge fee which covers the administration charges incurred when you either pay off your mortgage, or move mortgage provider).

Unfortunately, many lenders have been quietly increasing their redemption fees over the last few months. A recent study by the Moneyfacts mortgage team has shown that, over the twelve months to 31 March 2005, 53 providers increased their redemption penalties – and over 23 of these by over 100%!

The Alliance & Leicester, for example, has increased its redemption fee from £195 to £295. Cheltenham & Gloucester's has increased from £100 to £225, and the Bank of Scotland's has jumped a whopping £150 - from £75 to £225! And Abbey will be increasing its redemption fee from £99 to £225, from 11 May.

It seems hard to believe that administration costs can suddenly be that much more expensive, which implies that this is a way that providers are choosing to 'lock' us into their products.

Lenders are said to believe that they need borrowers to stay with them for seven years before they make any money on their loan. So in a time of 'rate tarts' – people who generally take advantage of two-year deals before moving on, providers will clearly struggle. When you couple this with the fact the mortgage market is extremely competitive at the moment anyway, you can see that lenders are balancing out their good deals with disproportionately high fees.

Remember, too, that this doesn't just affect new customers. Those who already have one of these products will often be subject to these new fees upon exit, which lenders undoubtedly hope will persuade them to stay and check out the current deals they provide. Northern Rock (currently charging £250) is an exception as it has guaranteed that existing customers will only pay the fee stated in their original mortgage offer.

But it's not all doom and gloom – there are still over 42 providers offering exit fees of less than £100, and sixteen with no fee at all.

If you're approaching the end of your mortgage deal, check out your options carefully. Always speak to your current provider to check out the deals it currently has on offer. By re-mortgaging with the same lender you may be able to negotiate to not pay your redemption penalty at all – and you can avoid a whole host of other charges, including legal and valuation fees. This could save you a lot of money.

Check out the Best Buys in the newspapers and on the internet too – but watch out for high application charges and those redemption fees.

The best way to compare the various deals is to calculate how much they will cost over three years – find out more here.

You may find it's worth taking a slightly worse rate for a smaller redemption penalty (– although it all seems to be a bit of a gamble anyway, if providers can simply raise redemption fees once you've signed up anyway!)

So don't forget to check out the mortgage redemption penalties when taking out a mortgage – you may be able to save yourself some money in the future.

Enter our competition to have your mortgage paid for two years, and find out more in our Mortgage Centre.