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Mortgage fees and costs
A Guide to Mortgage Fees and Hidden Costs

Taking out a new mortgage or re-arranging an existing mortgage can be costly. There is a whole spectrum of fees associated with arranging mortgages. Some of these mortgage costs are expected and transparent, while others are more hidden mortgage fees. When buying a house, it is important to consider the overall mortgage costs—house price plus all the necessary mortgage fees. Especially be on the watch out for hidden mortgage fees and take time to research how you could avoid certain mortgage fees. 

Lenders arrangement fees

In order to arrange certain types of mortgages, in particular fixed or discounted mortgages, many lenders will charge mortgage fees known as an arrangement fee.  These can vary from a few hundred pounds up to a full 1% of the mortgage amount and sometimes more.  It is usually better to pay the arrangement fee upfront in full. If the fee is added to the mortgage, you will be charged interest on this as well.  Some lenders will refund these mortgage fees if the mortgage application is unsuccessful.

Mortgage indemnity premiums

These types of mortgage costs are also referred to as higher lending charges, guarantee premiums, mortgage indemnity guarantees, just to name a few.

These mortgage fees serve to protect the lender if, for whatever reason, you are unable cover your mortgage repayments.  It is used by your lender to purchase appropriate insurance that will cover them should your property be repossessed.

The cost of these mortgage fees will depend very much on the size of your mortgage compared to the property value.  If you have a hefty mortgage, the charge could amount to many thousand pounds.  If your mortgage is relatively modest, these mortgage costs may only be a few hundred pounds.

You can avoid paying this premium if you have a large deposit. These mortgage fees generally only apply if you wish to borrow more than 75% of the property value.

Broker fees

Some borrowers are more comfortable using the services of a professional broker. They are willing to pay brokers fees to give them peace of mind.  Some people appoint brokers as these brokers may have access to certain exclusive products not available to the public. 

Most reputable brokers will only charge mortgage fees once your mortgage has been successfully completed.  Generally, brokers tend to charge up to 1% of the mortgage they arrange.

Survey and/or valuation fees

Any mortgage lender will require a valuation of the property before it will make a mortgage offer.  The valuation fee will normally be paid by the borrower. These mortgage costs will be demanded upfront when you apply.

These mortgage fees do not vary greatly between lenders.  Increasingly, more lenders are offering to pay the valuation fee or to refund it to the borrower when the mortgage completes.  You can save money if you ask the surveyor who is undertaking the lender's valuation to carry out a more detailed inspection of the property for your own purposes at the same time.

Hidden mortgage fees

Beware of hidden mortgage fees that can be found in certain types of mortgage deals.  If you have an unscrupulous lender, you may not be thoroughly informed of hidden exit mortgage fees until you decide to switch lender or product.

There are also some early-repayment mortgage fees which apply if you decide to pay off your home loan earlier than originally agreed.  Other hidden mortgage costs which you may not be completely aware of include application or completion fees that you pay when you take out the loan, sealing fees, and deeds-release fees.

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