Mortgage fees explained

A booking fee is charged upfront and pays for ‘booking’ the loan while your application goes through. It can also be known as an ‘application’ or ‘reservation’ fee, and could be around £100-£300. It won’t usually be refunded if you end up not taking the mortgage out for any reason. This is the case even if your application is declined. Some lenders may deduct the booking fee from the arrangement fee (if both apply), but not all will.

Also known as a ‘mortgage fee’ or product fee,’ an arrangement fee is a cost you pay to your new lender for setting up your mortgage. Arrangement fees could be around £1,000, though they can vary significantly. It’s important not to overlook these fees when comparing mortgage deals, as they can have a big impact on the overall cost.

You can usually choose between paying the arrangement fee upfront and adding it to the mortgage. It will cost more if you add it to your mortgage as you will pay interest on it, so it makes sense to pay it upfront if you can.

While fixed fees are more common, some arrangement fees are charged as a percentage of the loan. Percentage fees rise with the size of the loan, so on a large mortgage, they can add up to several thousand pounds. Repetition

Note that sometimes it’s worth opting for a deal with a slightly higher mortgage rate if this means a lower arrangement fee.

This pays for your lender’s survey on the property you want to buy. This is a basic survey which is only to check the property is worth the amount you want to borrow, and adequate security for the loan. The cost of a valuation fee varies considerably from £500 to more than £1,000. Some mortgages even come with free valuations.

Legal fees pay for a solicitor to do the paperwork for you, which is a process known as conveyancing. This includes handling the searches, title transfers and drawing up contracts when buying a home. Usually, these fees are fixed fees, typically ranging from £800-£1,500, plus additional ‘disbursements’ for searches and checks.

Some solicitors or conveyancers will calculate their fee as a percentage of the value of the property. Mortgage lenders often have offers where they contribute to these fees or pay the standard legal fees (known as ‘free legals.’).

Higher-lending fees used to be charged on mortgages that covered a particularly high proportion of the purchase price, known as a loan to value (LTV). However, most lenders now absorb this cost themselves.

Where a higher lending charge still applies, the money is often used by the lender to buy an insurance policy which protects itself (not you) should you default on the mortgage. Since the amount you have deposited is only small, this covers the lender if your property falls in value after you buy it, meaning the lender has to sell at a loss.

The higher-lending charge is usually refundable if you don’t go ahead with the mortgage. It’s generally expressed as a percentage of the loan.

Most mortgage deals tend to have a relatively short life. For instance, fixed-rate, discount, and tracker mortgages usually only run for between two and five years. Though, it is possible to find deals over ten years. Whatever the term, if you come out of the deal before it ends, you will have to pay an early repayment charge (ERC).

In most cases, this is charged as a percentage of the loan. ERCs typically range from 1% to 5% of the outstanding loan, depending on the deal. These charges can add up to thousands of pounds, so think carefully about how long you’re happy to tie in for before committing.

If you don’t pay your monthly mortgage payment on time, you’re likely to face a fine. This is known as a late fee, which is often a flat amount or a small percentage of the missed payment.

Generally, you can expect to pay anything from 4% to 5%. Before charging you, most lenders will offer you a grace period in which you can make the payment without any additional costs. But bear in mind that any late repayment can still have a negative impact on your credit score.

An exit fee may be charged for repaying your mortgage and closing your account. This could be, for example, if you switch to another lender or remortgage to another deal with the same lender. But it can also be charged when you just finish paying off your mortgage. This is also known as a mortgage completion fee, deeds release fee, or exit administration fee. To find out more, check your paperwork or speak to your lender.