Mortgage holders 'should be aware of annual interest'

02-Feb-2007

First time buyers and repeat purchasers looking to take out a new mortgage should be aware of annual interest charges, research suggests.

According to data released by Moneyfacts, annual interest charges can significantly add costs onto the original loan. Mortgage holders - including first time buyers - accrue interest for a 12-month period without monthly payments being taken into account.

Indeed, the company estimates that a £130,000 loan over 25 years, with an interest rate of five per cent, will incur additional interest payments of £2,604 when calculated over the term of the mortgage.

"If you are making overpayments to your mortgage, you would be well advised to check how your interest is calculated," said Julia Harris, mortgage analyst at Moneyfacts.

"Lenders are in business to make a profit, but if you see a rate that looks too good to be true, then there may well be a catch," she added.

Although a number of mortgage lenders offer interest calculated on a daily or monthly basis, some providers offer interest calculated annually, include Leeds Building Society and Vernon Building Society.

To find out about those mortgages specifically aimed at first time buyers, see our best buys for first time buyers table.

Moneyfacts offers comparisons on a number of financial products, including credit cards and pensions.

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