What are the mortgage fees? A full list of all possible mortgage fees and adjacent costs, evident or hidden

Lenders charge a series of fees ,other than the interest. Some of these fees are evident to you, as the borrower, and others are simply not mentioned or are spread out over the course of the mortgage by being incorporated into the payments.

We have divided these fees into five categories: set-up fees, administrative fees, insurance costs, early repayment fees and exit fees. Because this guide specializes on fees, each possible fee will be mentioned and explained in the sense that this guide will provide a clear understanding of the situation in which each fee is applied, the approximate amount and the justification for it's application.

Set-up Fees

Set-up fees are fees that your lender will charge you for the verification process, the valuation of the property and for the reserving of the borrowed amount.

Booking/ Reservation/ Arrangement Fee

These fees are charged for the allocation and reservation of the capital sum by your lender before you actually receive it. This charge differs from lender to lender and in some cases it is even discounted as part of their special offer. You can expect to pay anywhere from a couple of hundred pounds to a thousand.

Valuation Fee

The lender will want to valuate the property you intend to purchase in order to see if, in the event of repossession, the capital amount can be recuperated.

The valuation fee is proportional to the value of the property and can be as high as £ 250 for a property value of £ 200,000.

Higher Lending Charge

The higher lending charge is a charge instituted for mortgages with a LTV (loan to value) higher than 90%. This charge is calculated based on a percentage, usually 8%, of the amount that you borrow that exceeds 75% of the value of the property. For example, if the property is worth £ 100,000 and you borrow £ 95,000, you will be charged 8% of £ 20,000 (£ 1,600) as a higher lending charge. Some lenders do not apply such charges.

Purchase Fees (unrelated to the mortgage itself)

Purchase fees are the fees usually associated to registering your purchase. These fees include conveyance fees (about £ 400 for a purchase of £ 100,000), legal search fees (£ 100) and land registry fees (£ 100). Also find out what the stamp duty is on the purchase value. As there are brackets and it is not a percentage it may be wise to negotiate some more or split some costs, like furniture and electronics, to avoid falling in a higher stamp duty bracket.

Administrative Fees

Administrative fees can arise in one of the following instances: when you fall behind on your payments, when your property is repossessed, when you wish to make modifications to your mortgage and upon requesting information or the temporary release of deeds.

Arrears Fees

Arrears fees are fees imposed for delayed payment on the installments, the insurance or for issuing bounced checks for the payment of the installments.

Repossession Fees

Repossession fees arise when insolvency has been established and your property is repossessed. These fees include auction attendance fees, possession fees, and county court fees.

Modification Fees

Fees are also charged whenever a borrower whishes to make certain changes to the mortgage. These changes include tenancy request, part sale of land, transfer of equity or second charge if you wish to extend your mortgage.

Information Request Fees

Also, fees may be charge for any type of information request that you might formulate to your lender such as a deed release fee, arrears breakdown fee (statement), duplicate mortgage statement fee or duplicate breakdown mortgage fee.

Insurance Costs

Lenders require different types of insurance to be taken out for the property itself or for the stakeholders of the mortgage agreement. Only some are mandatory. Acquiring insurance from your mortgager directly may not always be the best policy as there may be better deals from independent or unassociated insurers.

Mortgage Indemnity Insurance

The mortgage indemnity insurance is an insurance policy that does not concern you directly but is charged to you, usually spread over the course of the mortgage and integrated into the monthly payments. This type of insurance protects the lenders from a borrower inability to pay.

Home insurance

As the property you purchase will only be yours at the end of the mortgage term, the lender will require you to pay for the insurance of the property. An advantage to this is that, most likely, the contents of the property will also be included in the insurance policy.

Mortgage Payment Protection Insurance

This type of insurance protects you if at some point you become unable to make payments on your mortgage due to illness, unemployment or other unforeseen events. This could be a smart thing to have, provided you can afford the extra cost.

When applying for a mortgage you are not obliged to purchase insurance from your lender if the particular lender offers it to you. In some cases this option is cheaper but in some cases it does prove to be more costly. The best thing to do is to look around at other insurance offers and see if you can get a better deal.

Early Repayment Fees

Early repayment fees are fees instituted by your lender with which you are charged if you wish to switch lenders. You are charged with these fees only in the special offer period of the mortgage when you have a special deal, discounted or fixed interest rate.

If you have opted for the standard variable rate then you can switch lenders at any time without any penalty. Few people opt for this rate because it raises mortgage cost to an unnecessary level.

If you have an extended tie-in clause attached to your mortgage then an early repayment fee will be applied if you wish to repay your mortgage before its term or if you wish to switch lenders at any time over the entire term of the mortgage.

These costs range from the amount that you would have to pay in interest over a few months to as much as a percentage of the outstanding capital sum.

Exit Fees

Exit fees are fees that are charged at the end of the mortgage. These fees can take a borrower by surprise as they are rarely explained properly at the beginning of the mortgage.

Examples of exit fees include deed release fees, final administration fees, final redemption fees and sealing fees. Although these are not of particularly high cost, you have to be aware of them and plan accordingly.

Final Word

Most mortgage fees can be avoided provided you plan ahead and do not get in a position in which fees would be applied. By analyzing different offers from different lenders you may find that some of these fees are smaller with some lenders or even nonexistent.

It is important, once you calculate your mortgage costs, to be thoroughly informed of all possible fees that the lender could apply to the particular mortgage deal that you calculate the cost for. In most cases it is even wise to discuss each fee mentioned above and see if the lender will apply it, in what circumstances he will do so and what the exact amounts would be.

You may find that fee costs can be quite relevant or if not, they can certainly tilt the scale to one side or the other.