mortgage fees explained

Mortgage Fees

explained

When arranging the purchase of a house or remortgage it is easy to forget some of the extra sometimes hidden fees that crop up. Below is a breakdown of some of the more common fees you're likely to have to pay;

Mortgage Arrangement fees

Often referred to as setup fees these fees have become increasingly common in recent years. Amounts vary from a couple of hundred pounds to as much as 1% of the total loan value. Some lenders require these fees to be paid up front, other will simply add the amount onto the loan you are taking out. If the latter is the case don't forget that you'll also be paying interest on the fee!

These fees can be quite large on discounted mortgages. Often the lender will offer a large discount for say 12 or 18 months to attract new customers and then impose a high set up fee to offset the discount. As a result you should always factor the size of such a fee into your decision when choosing a mortgage.

Valuation/Survey Fees

All mortgage companies will require an independent valuation on the property you are trying to mortgage. Quite simply this is so that the mortgage company knows exactly what your home is worth. Usually they employ an independent surveyor to do the valuation and pass the charge on to you. It is worth remembering that you should of course get a survey done on any property you are thinking about purchasing. Some lenders offer a variety of valuations ranging from a simple valuation to a full structural and internal survey. If unsure about the property and particularly if the property is an older building you should consider paying the extra for a full survey. This will alert you of any potential problems that may arise in the future or repairs that need performing.

Higher Lending Charge (HLC)

Some mortgage lenders impose a HLC on loans where the Loan is proportionally very high when compared to the value of the property (LTV). If your mortgage has a LTV of over 80% you may well have to pay a higher lending fee. Obviously the higher the value of the loan, the higher the charge.

Redemption Penalties/Fees

The fees regularly appear in the features list of mortgages. Most mortgages have some initial tie in period whereby if you remortgage or repay your loan before the redemption period has expired you will have to pay redemption penalties. The fees are usually quoted as a percentage of outstanding loan. They are designed to prevent borrowers constantly switching mortgages as newer and better deals are offered by competitors. Their existence makes it even more crucial that you choose the right mortgage as if you have heavy redemption penalties attached to your may well be stuck with the loan until the redemption period ends.

Legal Fees

When you take out a mortgage the mortgage company doesn't simply send you a cheque in the post! In order to prevent you running off with their money you must employ a solicitor or lawyer to manage the transaction for you. The solicitor will arrange the legal documents required and take delivery of the mortgage money and deliver it to the solicitor of the person who's house you are buying.

Moving / Repair / Decoration costs

When moving home there may be work that you need or want to carry out on your new property before or just after you move in. Obviously any major costs will hopefully be highlighted in the survey of the property. However it is always wise to add on a contingency amount to cover any small repairs, redecoration and moving costs that you may incur.

The lesson to be learnt is that there are many fees and additional charges that you should consider when choosing your mortgage and deciding the exact amount you need to borrow. Factoring in a contingency amount of a couple of thousand to cover unexpected costs is a very sensible precaution.