How Mortgage Fees & Early Repayment Charges Affect Loan Costs

Getting a mortgage deal may result in cheaper monthly repayments but saving money often comes at a cost. Lenders can charge arrangement or booking fees for the deals they offer and many will also levy additional penalty charges if a homeowner tries to end a deal early. What are the costs of arranging or switching mortgage deals?

What are Mortgage Arrangement Fees?

An individual looking to take out a new mortgage deal is likely to be charged an arrangement fee of some kind. These fees vary across lenders and deals. They are most commonly charged as a one-off fixed cost that can range from around £500 to over £1,000.

How is a Mortgage Arrangement Fee Paid?

Some will pay this fee to the lender when they arrange a deal; others (if the lender allows) will bundle it up into their mortgage borrowing. Bear in mind that adding the charge to the loan may be cheaper in the short term but it may cost a lot in the long term with the addition of interest.

Is it Possible to Find a No Fee Mortgage Deal?

Occasionally a lender will offer a deal that comes with no arrangement fee as a special offer. This may look good on paper but it is worth checking that the no fee basis doesn’t hide additional costs such as higher interest rates or early repayment charges.

What are Early Repayment Charges on Mortgage Deals?

Many lenders will fix an early repayment charge (ERC) on deals. If the homeowner takes out a deal and then decides down the line that they want to end the agreement early, then they may have to pay a percentage fee. This could apply for the full term of the deal or for the beginning part of it. Some lenders will give deals with no early repayment charges so this may be worth looking out for.

Some Mortgage Deals Ask for Higher Deposits

It is also worth noting that the best mortgage deals may also set deposit/LTV conditions. Those with higher deposits and a lower Loan to Value need may find it easier to access good offers than those with a smaller deposit.