Choosing a mortgage
Different Types Of Fee
As the world becomes more and more competitive, lenders
are constantly looking to streamline their costs and make
it easier and cheaper for the customer to obtain a mortgage.
However, some lenders make certain additional charges to
compensate, the more unscrupulous of whom do this by making
the fees rather less than obvious to all but the most careful
scrutiny.
There are six common types of fee that must sometimes be
paid before your mortgage can be completed. You can sometimes
add the cost of these fees to your loan, but remember that
you will then end up paying interest on them for the entire
duration of the mortgage. If you can afford to pay them
up front, this is usually better for you.
Application fee
This type of fee is becoming less common than an arrangement
fee. You have to pay this fee to the lender up-front, at
the time when you are applying for the loan. Some lenders
refund the application fee on completion of the mortgage.
This type of fee is usually to be found with the more
competitive special deals from lenders. It is likely that
these fees are in place in order to try and restrict the
number of applicants by only attracting serious buyers.
Booking fee
Booking fees are usually paid to reserve funds on mortgages
that have a limited amount of money available, such as loans
granted on a first come first served fixed rate. The booking
fee is usually a fairly low sum, such as £50 or £70, but
is non-refundable and can't normally be added to the mortgage.
Arrangement fees
It is quite common for an arrangement fee to be charged
by the lender. Arrangement fees are usually paid on completion
of the mortgage and anything from £75 to £400 is fairly
common.
As with arrangement fees, this type of fee is most likely
to be charged in conjunction with particularly competitive
mortgage rates - discounted, fixed and sometimes capped
rate mortgage products. It could be the case that the lender
is trying to offset some of the long-term cost of offering
you such a competitive mortgage rate and you must weigh
up which is most important to you, especially if you must
pay the fee up-front.
This type of fee can normally be added to the loan. It
makes very little noticeable difference to your monthly
repayments, but you will be paying interest for the full
term of the mortgage, so it will add up eventually.
Administration fee
Sometimes you may be charged an administration fee for not
taking a building and contents insurance policy, or some
other product offered by the lender. It is difficult to
know how much extra administration is caused by your decision
not to take a policy, but it must be some compensation to
the lender to know that they are at least getting some money
back.
Valuation fee
This is a charge for carrying out a valuation of the property
on behalf of the lender. Many homebuyers rely on the valuation
to act as a survey, but it should be remembered that the
valuation is not carried out on behalf of the mortgage applicants,
so a more detailed survey is often seen as necessary for
peace of mind. Valuation fees usually cost between £150
and £250 and are sometimes refunded, particularly with remortgage
products.
