There are more fees to consider than your monthly repayments when taking out a mortgage. Let’s break down all the different mortgage costs you can expect.
When setting up and applying for a mortgage, you’ll most likely be focusing on your potential monthly repayments. Within that, you’ll be looking at the interest rate and also the deposit you’re putting down – the interest you pay and the size of your deposit will help determine how much you’ll be paying back on a monthly basis. But there are often other fees to factor in when applying for a mortgage.
Let’s take a look at what expected (and unexpected) costs can come up so you’re not met with any nasty surprises.
Arrangement fees
Also known as the mortgage product fee, this is a one-off fee you pay to arrange the mortgage and it’s usually around 0-5% of the total loan you’re taking out.
It’s important to note that a mortgage product with very low arrangement fees will probably have a higher interest rate and therefore isn’t likely to save you money in the long run. Make sure you’re comparing both and choosing the option that suits you better.
Usually, you can pay the fee immediately when you set up the mortgage, or you can add it to the total cost of the loan. Again, the latter option may well cost you more in the long run because you would be paying interest on it.
Booking/application fee
This is a fee to secure your mortgage deal – usually a few hundred pounds. Not all lenders charge this though, so keep an eye out for it when you’re browsing deals and lenders.
Telegraphic Transfer Fee/CHAPS
CHAPS (Clearing House Automated Payment System) is a system the mortgage lender uses to transfer the mortgage loan money to your solicitor, who will then transfer it to the seller. It allows payments to be sent and received on the same day and is the reason you can usually move into your new home shortly after you’ve paid for it.
But of course, with such high speed and security comes a cost. Thankfully, it’s only a small one – usually £20-£30.
Valuation fee
A valuation is the assessment the lender carries out to make sure the property is worth what you’re borrowing to buy it. It’s not the same as the survey which identifies any potential issues with the property – if you haven’t already done this, you should.
This is sometimes free or included in the price of your mortgage. If it isn’t, it can range from anywhere between £150 to £1,500.
Early repayment charges
Also known as overpayment charges, these are fees you pay if you pay off more of your loan than is scheduled. It allows you to reduce how much you owe and save some money in interest.
Most lenders have a specific amount they don’t mind you overpaying, but there’s usually a limit. This is because it’s not in their best interest to let you overpay too much, as they’ll lose out on the money they make from the interest you pay.
They may let you pay this off monthly, or with one lump sum per year. Make sure you’re clear on how much you can overpay and when, and if there you’ll need to pay a fee if you go over the cap. These fees tend to be between 1 and 5% of the amount you’ve overpaid. It’s really important you understand whether there will be fees to overpay your mortgage to make sure it’s worth it.
Make sure you check the specifics of your mortgage agreement. Some lenders apply a sliding scale for their early repayment charges, where the percentage decreases over time.
Missed payment fees
Also known as penalty charges, this is what you pay if you’re late to pay your monthly mortgage payment or if you’re in arrears.
Fees differ from lender to lender. But if you suspect you might have trouble paying your mortgage, contact your mortgage lender. You might be able to organise a payment plan to help you get back on track.
Exit fees
‘Exit fee’ is just one of the names used for this charge. There’s also discharge fee, repayment administration fee, closure fee, or deeds release fee – however it’s named by your lender, it’s the fee used to cover the administration costs when closing your mortgage account.
You may need to pay an exit fee if you decide you want to change to a different mortgage before your current one ends. It may also be charged if you’ve repaid your outstanding loan before the end of the original term (through overpayments) and now want to close the account.
It’s important you compare the costs and work out what the difference is. If the interest rate on the new deal is good enough that it’s worth paying the exit fee to access it, then go for it.
The Mortgage Hut can help
We know it sounds like a lot – between interest rates, product fees, early repayment charges and more, the prospect of comparing all of these potential fees can feel daunting.
We can do it for you. At The Mortgage Hut, we have access to thousands of mortgage products through hundreds of lenders, and specialist mortgage brokers who can compare each deal and explain it to you in simple terms. Just reach out to our team to get started.
FAQs
Is a mortgage exit fee the same as an early repayment charge?
No, they’re separate charges. An early repayment charge (ERC) is what you’re charged when you overpay your mortgage repayments. An exit fee is what you pay if you decide to close your mortgage account before the term ends – either because you’ve found a product you want to move to, or you’ve now paid off your whole mortgage early and want to close your account.
Can you add solicitor’s fees to a mortgage?
No, these are separate fees for different services. The mortgage cost covers the price of the property, and the conveyancing fees cover the cost of the conveyancer’s time and fees for their services and are paid directly to them.
Is it worth paying a product fee on a mortgage?
It depends – if the mortgage deal with a product fee charges lower interest rates that would save you money in the long term, it may be worth it to pay the upfront cost. Make sure you’ve done your research and have properly compared deals to ensure you’re getting the best option.
