17 months to pay off your application fee

Mortgage application fees are on the up and research from Moneysupermarket.com shows that it could take up to 17 months to pay off the application fee for your mortgage. According to the research from the financial comparison site, a Northern Rock two year fixed rate deal with an application fee of £5,250 on a £150,000 mortgage could mean that you spend 17 months repaying the application fee and only seven months repaying the mortgage debt. An Abbey deal with a lower rate would mean paying off the application fee in just four months.

With increases in the Bank of England base rate and more fixed rate products on the mortgage market, homebuyers may have difficulty in finding deals that don’t have high application fees. There are two options for avoiding what Moneysupermarket.com calls a ‘fee sentence’. One option is to pay the application fee if you have the cash rather than adding it to the mortgage. This means you start to repay the mortgage straight away. If that’s not an option then you need to find the lowest application fee possible to speed up repayments.

With the deals highlighted above, although repayments are lower on the first deal, more (more than £2,000 more) is repaid on the second deal. Louise Cuming, head of mortgages at moneysupermarket.com, said: ‘This calculation is key – people should look beyond the monthly payments, and instead on what will actually be paid off over the term of a deal. It can be worth it to pay a little more each month if that means you are paying off the actual mortgage and not just the fee.’

It goes to show that it’s worth doing your homework on a mortgage deal and calculating the headline rate, application fees and the real cost of the mortgage before making a decision.