Mortgage Fees
Your mortgage lender will charge you for administrative services. These charges vary between lenders and you should bear them in mind before choosing your provider, since they can increase the overall cost of your mortgage. Some fees will be explained by your mortgage lender or broker, whilst others are less apparent. It is in your best interests to read the terms and conditions, which explain each charge and indicate the overall cost of your mortgage.
Some fees will typically be added to the total mortgage amount so that you do not need to pay them immediately. Remember that if you do this you will be charged interest on this total amount for the entire duration of your mortgage, which could increase its cost considerably.
Mortgage providers use different names for their fees. In general, the following will be charged by your lender either before or after you take out the mortgage:
- Arrangement Fee - (also known as booking fee, reservation fee and set-up fee) is charged by most lenders when they accept your mortgage application. The arrangement fee can be several hundred pounds. The size of this charge varies between lenders and is also dependent on the type of mortgage you have. Because mortgage lenders compete for your custom with low interest rates, these fees have risen in recent years to counteract the loss of earnings from interest charges.
- Completion Fee - most lenders charge an arrangement fee when your application is accepted. However, some will charge a completion fee instead; this is charged when you move into your new home. A small number of lenders charge both an arrangement and completion fee.
- Early Repayment Fee - (sometimes referred to as an early redemption fee) is charged if you wish to remortgage or pay off your mortgage early. Lenders apply this 'penalty' fee to try and ensure you do not switch lenders or repay your mortgage too early and reduce their profits. In some cases, this penalty extends beyond a fixed or discounted interest rate period, which means that even though you no longer have the promotional interest rate, you are forced to stay with your existing mortgage provider. This is known as an 'overhanging lock-in' or 'extended early repayment fee'. A lender's standard variable interest rate can be high, so it is often better to find a higher introductory interest rate with no overhanging lock-in, and switch mortgage providers at the end of the discounted promotional period to avoid the higher interest rates without penalty. An early repayment fee can range from a number of months' interest to a percentage of the amount borrowed that you still owe, which could cost you thousands of pounds.
- Exit Fee - may be charged for administrative services such as completing your mortgage transaction or switching to another lender. Most lenders no longer charge this fee, since the Financial Services Authority (FSA) ruled that fees had become too high, were unfair and unjustified. Fees of up to three hundred pounds were not uncommon. In some cases you may be entitled to a refund of any unfair exit fee you have paid in the past. Contact your local Citizens Advice Bureau to ask if you are eligible.
- Mortgage Broker Fee - If you use a mortgage broker to choose a deal, you will usually be charged a fee for their services. This fee varies between brokers and may be paid upon signing of your mortgage contract, or earlier. Although some brokers are able to offer you a better deal or access to mortgages that were previously unavailable to you, others will charge you high fees. Compare mortgage broker fees carefully before you make a choice. For more information see Choosing a Mortgage.
- Overpayment Fee - An overpayment is any payment on your mortgage that exceeds your normal repayment. If you overpay on your repayment mortgage, you reduce the amount you owe more quickly than the lender anticipated when you signed your mortgage contract. You could repay your mortgage early, thus reducing the overall cost because you do not pay as much in interest, which is charged each month you are in debt. Some lenders will penalise you if you make excessive overpayments, particularly if you have a special interest rate deal. This penalty is in the form of an overpayment fee, or a restriction of the overpayments you are able to make within a year. For more information see Early Repayment.
- Valuation Fee - may be charged by your mortgage lender for the property valuation which determines whether the amount you wish to borrow is suitable considering the actual value of the property you are buying. The size of the fee depends on the value of the property you wish to buy, which means this charge ranges between a few hundred pounds to over one thousand pounds. Your lender needs to ensure that in the event you cannot repay your mortgage, they can recover their money. Because your mortgage is secured against your property, if you borrow an amount equal to or less than its value, selling the property would recoup the lender's money. Some lenders do not charge a valuation fee, but their mortgage may work out more expensive in other ways. Ensure you compare all aspects of the deal before making a final decision.
There are numerous other fees you may have to pay as part of your mortgage. Further fees include missed payment charges, the Higher Lending Charge, charges if you need duplicate copies of the deeds and further administrative services. Ensure you read the terms and conditions of the agreement carefully, to see which would apply in your case. For further details see:
