Steven Marks explains the common fees to prepare for when arranging your mortgage.
DECIDING on the right mortgage can prove to be a difficult decision, and many people are put off when they realise there are certain fees attached.
There has been some confusion among consumers causing them to question the fairness of mortgage fees. Some lenders charge a booking fee, most commonly for a fixed or discount deal to discourage borrowers from making lots of applications with different lenders.
More common is an arrangement fee, which largely covers the administration around setting up the mortgage. These can vary from a few hundred pounds to 1% of the mortgage amount.
Sometimes lenders will ask for this fee to be paid when the application is submitted. Alternatively, they will add the fee to the loan.
Borrowers must be aware that they may be charged interest on this throughout the mortgage. It is wise to check whether the fee will be refunded if, for some reason, your application does not proceed.
Exit fees, charged if you switch lender, have been removed or reduced by most mortgage lenders following an official inquiry into their unfairness.
At the same time, there has been an increase in the number of deals offered by lenders which have a higher arrangement fee. Many borrowers – particularly those with large mortgages – are happy to pay a higher fee in return for a lower interest rate.
Completion fees are less common than arrangement fees and usually range between £200 and £400. Borrowers who use mortgage brokers to find their loan may also have to pay broker fees.
Higher lending charges are often applied to loans that are a high percentage of the purchase price.
They are designed to protect the lender if the borrower is unable to pay the mortgage. The lender will use this to purchase insurance to cover them in case they have to repossess the property.
Most lenders won't charge all of these fees together and will have special fees-free offers, say for first time buyers, or will add fees to the loan.
The best way to ensure you are getting the right mortgage for your needs is to take professional advice, like we provide for free in all our branches.
Fees are charged to cover costs associated with your mortgage incurred by lenders.
However, many lenders – such as the Newcastle – recognise how expensive the mortgage process can be, which is why they offer a wide range of incentive options on mortgages such as waiving certain fees and higher lending charges.
Most people buy and sell homes on only a few occasions in their lifetime, so it’s unlikely that they will understand all the ins and outs of mortgage lending – and some confusion is inevitable.
It is, therefore, vital to ask your lender to explain everything and that they take as much time as you need to understand exactly what you’re taking on – otherwise you could be making an expensive mistake.
Stephen Marks is lending and operations executive of Newcastle Building Society, which has branches throughout the North-East. For more information on mortgages or other financial queries, tel: 0845 609- 0202 or go to www.newcastle.co.uk