With so many mortgages to choose from, and so many schemes and programmes to help you secure your entry to the property ladder, you may be in a rush to take the big step, but hold your horses for a minute because there are some very important considerations you don’t want to overlook.
Interest rates are at an all time low, but mortgage-related fees have gone in the opposite direction. You need to exercise caution and make sure that you have a good grasp of the various mortgage-related fees, because these can add a few thousand pounds to the cost of your mortgage if you’re not paying attention.
There’s an entire menu of different charges and different lenders name them differently, so it’s important to know what the fees are and what they mean.
• Advice fees
If you use a financial advisor you’ll be charged an advice fee and it’s generally a percentage of the loan value or a flat fee, although there are some lenders who will pay the advisor a commission directly without charge to you.
• Arrangement fees
You pay this to set up your mortgage. They are in the region of £1,000, but some lenders charge as much as £2,000. They are payable either upfront or they can be added to the mortgage. Be warned that if you add them to your mortgage you will be charged interest. Sometimes this fee is charged as a percentage of the loan, which, on a large mortgage, can drive up your costs considerably.
Ultimately, it makes more sense to your pocket to find a lender with a flat fee. However, if you’re faced with an arrangement fee that’s calculated at a percentage of the total, it might be worth considering a mortgage with a slightly higher interest rate in return for a lower fee, even if the percentage on the loan amount is at a lower rate. Check your calculations and make sure that you’re not paying excessively for an arrangement fee.
• Booking, application or reservation fees
This is a non-refundable fee which applies to booking your loan during the application process. Fees are generally in the region of £99, but some lenders don’t charge a booking fee.
• Higher lending charge (HLC)
HLC is charged on mortgages that cover a large percentage of the loan. It’s effectively an insurance policy which protects the lender should you default on the loan. Note: You’re not covered by this insurance in the case of defaulting on your loan repayment. It is usually refundable if you change your mind about the mortgage, and is normally charged on a percentage ratio.
• Legal and CHAPS fees
These fees are for the legal paperwork that needs to be done, known as conveyancing, and are normally charged as a percentage of the mortgage price. There are lenders who contribute towards these fees or pay the standard legal fees associated with your mortgage. CHAP fees are charged for sending the paper work to your solicitor and normally cost between £25 and £50.
• Own building insurance fee
A small fee, which varies between £25 and £50 to ensure that you’ve got insurance for your property should you decline taking insurance through the lender.
• Valuation fee
The cost of a valuation fee varies quite widely, but there are some mortgages which come with free valuations, so it makes sense when you’re doing your preparation to look for mortgages with free valuations. Basically it pays for the lender’s valuation process to see whether the property is worth the asking price. Bear in mind that this valuation differs from the one conducted by estate agents.
There are two additional fees charged once you have secured your mortgage loan.
• ERC, which refers to early repayment charges. If you repay your mortgage before the expiration of the term, you’re charged this fee which is charged as a percentage of the loan. It can be quite pricey, so think carefully about the duration of the term of your mortgage.
• Exit or mortgage completion fee, which is charged for closing your mortgage account. For example, if you switch to another lender, remortgage with another deal or pay off your mortgage. It is generally in the region of £50 to £200.