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News: Skinny fixie confusion grows

Wed, 24 Oct 07

Borrowers should focus on the true cost of fixed rate deals as increasingly lenders offer deals which run out on a specific date rather than for a fixed term, says online mortgage company mform.co.uk...

Many lenders are currently marketing two-year fixes which in fact run out in September 2009 or even in August 2009 with the result that customers signing up for a deal which they expect to last 24 months have only fixed their payments for 21 months or even less.

The practice, known in the industry as “skinny end dates”, can mean borrowers forget to remortgage before their deal runs out or end up paying extra in fees. And mform.co.uk is urging customers to compare deals on the true cost of the mortgage taking into account all fees and monthly repayments.

Reducing price uncertainty

Current examples include a three-year fixed rate from Yorkshire Building Society at 5.89 per cent which runs until February 28th 2010. Initial monthly payments are £736.25 for a £150,000 interest-only deal. The true cost over 40 months would be £30,245 compared with around £31,254 for a deal at the same rate which ran out in September 2010

Francis Ghiloni, mform.co.uk Marketing and Business Development Director, said: “Borrowers might think that a fixed rate should be just that – fixed for however long they choose from when they take the deal out.

“But increasingly lenders offer deals fixed to a specific time. If you assume that it takes at least a month to complete a mortgage - and it’s usually much longer if you are buying a new home - then a deal fixed to August 31st can quite easily become a 21-month fix instead of a two-year fix.

“Lenders justify the skinny deals on the basis that it reduces pricing uncertainty for them However it only serves to increase confusion for consumers who want to compare which product is offering them the best value. We believe borrowers should look at the true cost of each offer before taking these deals as they could end up losing out.”


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