Your mortgage questions answered

David Hollingsworth

If fixed rates and arrangement fees are getting your head in a spin, fear not - our regular mortgage guru David Hollingsworth from L&C Mortgages is here. You gave him quite a grilling... here's what you asked.

I have a 25 year capital & repayment mortgage of about �150K with Nationwide which is fixed for 5 years at a rate of 5.34%, I have just under 4 years left to run on this fixed rate. I am allowed to make overpayments of �500 every month which I have done regularly every month straight after the mortgage payment has been taken.

Once I have made the overpayment I then receive a letter from the Nationwide thanking me for the overpayment and then going onto say that as a result my mortgage has gone down by about �3. It then goes onto say that if I want to reduce my term I should contact them.

Am I better off keeping with the reduced payment or reducing my term? My ultimate goal is to pay the mortgage off as soon as possible.

Nitin Tejura

As your main motivation is to repay your mortgage as quickly as possible then you should opt to reduce the term rather than take the reduced monthly payment option. This will maximise the impact of your overpayments in paying off the mortgage more quickly.

For example if we assume a rate of 5.34% on a �150k repayment mortgage over 25 years, maintaining your payments and overpaying by �500 p.m. would reduce the term by 12 years 10 months and save more than �68,000 in interest.

You will still save interest over the life of the mortgage by taking the reduced payment option but you will not pay the mortgage off more quickly and accelerate the effect of your overpayments.

Recently my daughter and son-in-law had to pay an arrangement fee of �799 to renew their mortgage with the same provider, Abbey National. Arrangement fees vary widely from �499 to �1999. If whatever arrangements have to be made are essentially the same in each case why is there such a variation in the fee charged?

T Jamison

The arrangement fee, sometimes referred to as a booking or reservation fee, is essentially part of the product pricing and cannot be allocated as solely covering the administration involved in setting up a new mortgage. Arrangement fees do vary dramatically not just from one lender to the next but from one product to the next.

Larger arrangement fees tend to come with lower interest rates so it is important to consider the overall value of a mortgage deal not just the rate. It may make sense to pay a bigger fee if you have a large mortgage but for those with a more modest loan size it makes sense to minimise the set up costs.There are some deals that carry no arrangement fee at all but are likely to carry a slightly higher interest rate.

Lenders do generally now offer a range of products with different rate and fee structures in an effort to offer something to suit all different types of customer.

My fixed rate term finishes April 1 2009 and I can buy a new product from Oct 1 2008. Do you know of any banks where I can buy a fixed rate product now in order to protect me from any further rises over the next few months?

Also i have heard in the press a couple of times that fixed rate products may be withdrawn completely. Is there any truth in this?

K Woodward

A mortgage offer from a lender is typically valid for between 3 and 6 months so it can be possible to start the shopping around process early. However this varies from lender to lender and many will now have specific completion deadlines on their mortgages so it is important to check any deal that you are considering.

Some deals can carry mortgage offers that remain valid for longer but these are specifically for new build properties.

I can certainly allay your fears that fixed rates may be withdrawn altogether. In fact the good news is that lenders are only withdrawing their fixed rates in order to replace them with cheaper deals at the moment.

The small print: obviously the views expressed are David's own and are not those of the BBC

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