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What Do The Terms APR, AER And EAR Mean?
By: Michael Challiner
Mortgage lenders have a derogatory name for people who switch mortgage lenders
to follow lower rates – they call them “Rate Tarts”. The author has a much more
apt description – Shrewd Shoppers! After all, who spends more for exactly the
same product, in this case money, when you can get it cheaper elsewhere? After
all a £ from one lender as effective as a £ from another!
The mortgage market is highly competitive and as long as lenders use price as
the main weapon in their marketing platform, price competition will encourage
remortgagers to follow cheaper deals. Call them Rate Tarts if you must, but
they'll be the richer for it!
In a response to curb mortgage switching, some lenders have raised their
up-front charges and others improved their customer retention programmes. In
such a competitive market, accolades will be awarded for the best customer
retention programmes but raising up front charges, will simply reduce the
lenders market share, albeit on improved profit margins. It seems that lenders
still have to learn that carrots are better than sticks!
For example, Birmingham Midshires currently offers a 3.89% two year fixed deal.
This looks like a clear bargain until you read the small print – the arrangement
fee is not the market average of £500, it's a massive £1,499! If you write off
the fee over two years at £749.50 per year, it's equivalent to an additional
three quarters percent interest on a £100,000 mortgage.
So if you are tempted to remortgage you need to do two things. Firstly add up
all the costs of moving your mortgage. Remember to add in the valuation fee
(typically £250 on a £100,000 mortgage), the arrangement fee (typically £500),
maybe a booking fee (£50?), legal fees to switch the mortgage (usually around
£350 on a £100,000 mortgage), plus the cost of any penalties you'll be charged
to exit your existing mortgage.
Now it's time to phone your existing lender.
Tell them you are considering moving you mortgage for a better deal. Unless you
put pressure on them, lenders frequently work on the principle that provided
they offer a fairly attractive deal, customer apathy will prevail. They rely on
the fact that many borrowers will be happy to sit tight and avoid the cost, time
and trouble of remortgaging. So shake their tree and see if a better deals falls
out. If they simply offer you their standard variable rate they don't deserve
your business!
Once you have fully assessed the costs of moving, found the best new deal you
qualify for, and got your existing lender to quote for keeping your business,
you can make the comparisons and a clear decision.
Brokers Online is one of the largest finance websites in the uk, they provide
access to life insurance quotes and most UK financial services including
remortgages. More information - How Do I Know If I Should Switch Mortgages?
About the Author:
Brokers Online are a uk finance site who aim to educate their clients BEFORE
they purchase. We offer access to cheap life insurance and most UK financial services including
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