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Mortgage costs - mortgage set up fees
Mortgage costs will vary depending on the lender, the
mortgage type being applied for, the total amount being
borrowed and the amount you are borrowing as a
percentage of the value of your home.
The additional costs charged by mortgage lenders can
usually be added to the loan. However, this means you
will end up paying interest on the additional costs
over the full period of the mortgage, so it is best to
pay the fees up front where possible.
Some fees, such as arrangement fees, usually accompany
the more competitive mortgage products. When choosing a
mortgage you will need to weigh up the benefits of the
competitive interest rates against any additional costs
that may be charged.
Keep an eye out for lenders who will reimburse you for
one or more of the costs below on successful completion
of the mortgage.
Unfortunately, some lenders will use different
terminology to the typical terms used below. If you are
unsure what a lender's fee relates to then ask
them.
Below is a list of the mortgage costs you should always
check when choosing a mortgage. This list relates to
mortgage costs only. There are of course many other
costs involved in moving or buying a new home,
including legal costs, removal costs, estate agent's
commission (for sellers) etc.
Arrangement Fee
Also referred to as the administration fee, the
arrangement fee is charged to cover the lender's cost
of setting up the mortgage. It is payable on completion
of the mortgage and is usually charged when applying
for a fixed, discount, capped or cashback mortgage.
Arrangement fees are typically between £100 and
£300.
Application Fee
An application fee is less common and is charged for
just applying for a mortgage. It is payable at the time
the mortgage application is made.
According to mortgage lenders, the purpose of this fee
is to restrict applications to serious applicants only.
The more cynical would suggest that this fee is just
another means by which lenders can increase their
profits.
Mortgage Indemnity Guarantee (MIG) Premium
A mortgage indemnity guarantee is a type of insurance
that protects the lender from you defaulting on any
mortgage debt when the sale of the property is not
enough to cover the amount owed. It is for the lender's
benefit, not yours.
A MIG premium is usually levied when the amount you are
borrowing as a percentage of the value of your home
(the LTV percentage) is fairly high, typically greater
than 90%. However, some lenders will charge a MIG
premium even if the LTV is as low as 75%. Other lenders
will not charge a MIG premium, regardless of the LTV
percentage.
Valuation Fee
Lenders will usually require your new home to be valued
in order to confirm that the property is worth at least
the value of the amount to be borrowed. This helps to
protect the lender in the event that you default on the
mortgage.
Early Redemption Penalty
An early redemption penalty is a charge that is made if
you switch your mortgage to another lender within a
predefined period. The charge can be as much as the
value of six months mortgage repayments.
The period over which the early redemption penalty
applies may be for the fixed, discounted or capped
period only or may apply for several years afterwards,
with penalties reducing as each year passes.
You should be aware that if you opt for a mortgage that
has an early redemption penalty period that extends
beyond the fixed, discounted or capped period you could
be trapped in that lender's standard variable rate for
a number of years, and that rate may be
uncompetitive.
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