Mortgage fees are the extra cost of borrowing money, on top of interest – a separate charge that the lender levies to just agree to give you the money, or to check your property is worth what you’ve agreed. It’s a real sting in the tail and some fees are ridiculously high. In fact, mortgage fees have pretty much tripled in the last decade.
Originally the lender’s fee was to cover the administration costs sustained during the setting up of your mortgage, but lenders now see the fee as an additional form of revenue. As few people have the ready cash to simply buy property, it’s generally assumed most homebuyer’s will need a mortgage, so you are faced with little choice.
But like everything there is an element of competition amongst lenders to secure new borrowers so it’s worth shopping around to see the best rates. Your IFA can help with this. Beware of self-serving mortgage brokers though who have a particular loyalty to certain lenders. It’s not unheard of for brokers and lenders to split lenders fees so you might find yourself ‘guided’ in a particular direction!
Look out for mortgage exit fees too. This is yet another fee added by the lender when closing a mortgage either when it is paid in full or even when you move to another lender. They can even be applied if you simply decide not to go ahead with the mortgage after all.
How it Works
Mortgage lenders will usually charge an arrangement fee which is the fee originally set up to cover admin. They will also charge you a valuation fee when they check out the property and there may be a booking fee if you have a special type of mortgage such as capped or fixed rate. The fees are normally incorporated into the overall borrowing amount too, so you will have to realize you’re paying the same rate of interest on those fees as you are for the actual mortgage amount.
If you can afford it, it is well worth asking if you can pay the fees up front as they are often quite big and can cost a lot of money over the mortgage term.
The fees will vary hugely between different lenders and you will need to sit with your IFA (or a trusty calculator!) to work out what is the best deal for you. Low fees can mean higher interest, or some lenders offset some fees by contributing towards legal costs – equally there are many incentives out there to tempt you in. Beware of those higher lending charges too! The deals change each week but you can find all you need to know by checking with your IFA or by looking online at lenders sites or mortgage comparison sites.
First-Time Buyer Cost Calculator
Work out the full upfront cost of buying your first home: deposit, stamp duty, solicitor, survey and mortgage fees, all in one place so there are no surprises.
Try our First-Time Buyer Cost Calculator free, here on this site →No Fee?
It does happen, but should be viewed warily, as the interest rate might be higher – if you’re not paying one way, you will be another! Compare the overall interest for the no-fee mortgage to the cost of fees with other lenders. The no fee mortgage may well be worth considering if you are borrowing a smaller amount though. The interest on the mortgage over time will be less than the whopping great fee in the first place.
Your situation may be slightly different. ask a question below ↓ and our editorial team will reply with our advice.
Brokers Fees
Mortgage brokers do have to reveal how and what they are paid for their services so make sure you check any deals they may have with the lender! IFAs these days often simply take commission from the lender for arranging the fee, but this can vary, and can have a bearing on the type of loan you are advised to secure. And you can sometimes end up paying them an administration fee on top too, so do check it out.
Ask A First Home a question
Ask our editorial team a question and we will reply with our advice. Tell us as much about your situation as you can: the more detail you give, the more useful our answer can be.
You do not need to use your real name. Please do not include your full address, phone number, email address, or the names of other people. We may edit or remove identifying details for privacy and legal reasons.
Comments are moderated before publication.