Taking out a mortgage can prove very costly. In addition to making regular mortgage payments, there are a number of other mortgage and fees and costs, such as a mortgage arrangement fee, stamp duty and solicitor fees that you may have to pay and therefore need to budget for.
Some of the mortgage fees and costs, which are explained in detail below, can often be rolled into the mortgage, with the costs added to your monthly payments. This practice is called rolling up the fees. However, choosing this option will mean paying more in the long run due to the added interest, as well as higher monthly repayments.
Mortgage fees and Costs
Mortgage booking fee/arrangement fee
This is the main mortgage fee that lenders charge to secure the mortgage funds and set up your home loan. Also known as the product fee, it is normally payable upon completion but can often be added to the loan. Fees vary from lender to lender but are typically around £500.
Broker fee
Mortgage brokers usually charge a fee for arranging the mortgage or providing advice. However, they must inform you of this and the amount they charge in the Key Facts 'about our mortgage services' document.
Valuation fee
The valuation fee is what the lender charges to carry out a valuation of your property so that it can. Because the mortgage is secured against your home, the lender needs to assess whether your property is worth at least the money it is lending you. The size of the fee depends on the value of the property and also the lender.
Re-inspection fee
Your property may need to be re-inspected, after the original valuation, to check if you've made agreed repairs. To cover its costs the lender charges a fee, which is usually between £50 and £100.
Higher lending charge
Some lenders charge a fee for those who wish to borrow more than 75 per cent of the value of the property. This is known as a Higher Lending Charge and is used to provide you with insurance that protects the lender in the event that you are unable to repay your loan and they have to sell your house at a loss. The size of the HLC depends on the amount you borrow and how much you put down as a deposit.
CHAPS fee
The CHAPS (Clearing House Automated Payment System) fee, also known as a telegraphic transfer fee, covers the lender's administration costs of transferring the mortgage funds to your solicitor. Most lenders charge around £40-£50, although some charge a lot less.
Insurance penalty
If you decide you don't want to take out buildings insurance cover with your mortgage lender, you may be charged a fee (typically £25) for making your own buildings insurance arrangements.
Early repayment charge
If you repay all or part of your mortgage earlier than the agreed term you may have to pay a fee known as an Early Repayment Charge (ERC). This usually applies to fixed and discounted variable rate mortgages, and is often calculated as a percentage of the outstanding loan. Your Key Facts about this mortgage document will have full details on when an ERC applies.
Exit administration fee
This is a fee levied by the lender when you redeem your mortgage, either because you have finished repaying it or because you want to switch to another lender. Exit fees range from anywhere between £75 and £300, but can be higher if any early repayment charge if applicable.
Note; All the mortgage fees and costs will be listed and clearly explained in the Key Facts about this mortgage document (also known as a Key Facts illustration or KFI).
Moving costs
Stamp Duty Land Tax
Stamp Duty Land Tax (SDLT) is a form of tax that is paid to the government when you buy a home. The cost of this tax varies depending on the purchase price of the property. If the purchase price is more than £125,000, you pay between 1 and 5% of that total. If the purchase price is £125,000 or less you don't pay any SDLT. If you are a first-time buyer you only have to pay SDLT on properties that worth £250,000 or more.
The SDLT payment is usually handled by your solicitor or licensed conveyancer who sends it to HMRC on your behalf.
Estate agency fee
This is a fee that estate agents charge for marketing and selling homes. The cost of their services is typically 1-3% of the property selling price.
Legal fees
These are the costs associated with the legal process of buying and selling a property (conveyancing). Your lender will appoint a conveyancing solicitor or licensed conveyancer to take care of all legal aspects of moving house, which include local authority and land charges searches, Land Registry and Stamp Duty. The fees charged by solicitors/licensed conveyancers vary but are typically around £500.
Survey fee
While your lender will carry out a valuation of your new property, this is only a very basic inspection. If you want a more detailed report on the property's condition, you can pay for a Homebuyers report or a structural survey to be carried out. The survey fee will depend on the surveyor, the size of property and the type of report you need.
Removal costs
When moving home, you may need the services of a removal company to help take your belongings from your old home to your new one. The fees charged vary depending on the company and how much of your stuff needs to be moved.
Mortgage-related Insurance
When taking out a mortgage, your lender or adviser may offer you a range of insurance policies. Some of these are compulsory alongside mortgages such as buildings insurance, whilst others are optional and depend on your circumstances. You may find that mortgage payment protection insurance (PPI) is a condition of your loan but it is important to remember that you don't have to buy this cover from your lender. In most cases, you will be able to find better deal by shopping around and comparing quotes.
Tips
- Check your Key Facts about this mortgage document for full details on all the fees you are required to pay.
- Try to avoid adding fees to the mortgage as this will increase the cost of your loan in the long run.
- Watch out for the hidden charges behind the cheap headline rate.
- Shop around for insurance deals. Don't fell pressured into taking out cover that your lender offers.
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