Lose pounds with skinny end dates, literally

Charcol.co.uk has found that mortgages with a “Skinny End Date” can potentially cost a borrower with a £200,000 mortgage £968 by not being on the longest deal available.

Katie Tucker, spokesperson for Charcol.co.uk, comments: “Borrowers tend to overlook the month part of the end date when selecting a mortgage product, often focusing on whether it is roughly a two, five of ten year fix. This could prove to be a costly mistake for many borrowers.”

Looking specifically at some of the products on the market, the case for checking your end date becomes crystal clear. Alliance & Leicester currently offers a two year fixed rate priced at 5.94% with a £1,999 arrangement fee and an end date of 30th June 2009. The Bank of Scotland offers a two year fixed rate with the same rate but an end date of 31st October 2009. For someone with a £200,000 loan the difference between the fixed rate and an SVR of 7.85% is £242 a month, so in just four months the additional benefit adds up to £968.

Tucker continues: “The end date is particularly important if borrowers have paid a premium arrangement fee in exchange for a low rate, deals that are more prevalent in today’s market. If you are paying an arrangement fee of 2.5% for your two year fixed rate, it should be 1.25% for each year of the deal. However an end date short by four months makes this 1.5% for a full year - the equivalent of 0.25% added to the annual interest rate. Additionally, if you stay on the lenders reversion rate for a few months at the end of your deal you could lose several hundred pounds in interest.

“Realistically, borrowers would simply remortgage earlier but on a long term basis this means that during a twelve year period you will bear the arrangement, valuation and exit fees of seven remortgages, rather than six.”

There are times however when a skinny end date is appropriate for a borrower. If you feel rates are expected to be lower in two years but you want a fixed rate for budgeting reasons then a short end date may suit. The message is that you just need to be aware of what your terms are and make sure they suit your circumstances.