Mortgage fees

Product fee

Also called the arrangement, reservation or booking fee, the product fee is the upfront price tag attached to a particular mortgage deal. A typical product fee is around £499, but it is becoming increasingly common to find product fees of £1,000 or more.
(See our mortgage feestable.)

Product fees can often be added to the loan, and it is always wise to take this option even if you intend to pay it upfront on the day of completion. This is because some lenders may refuse to refund product fees if they reject your mortgage application, or if you change your mind about going ahead with the mortgage before completion.

Valuation fee

The lender needs to assess that your property is worth at least the money it is lending you. So, it pays a surveyor to conduct a valuation, and covers its costs by charging you a fee. The size of the fee will depend on the price of the property, but even on the same property, there will be differences between the amount lenders charge.
(See our mortgage feestable.)

Higher Lending Charge (HLC)

A Higher Lending Charge is imposed by some lenders on those who wish to borrow more than 75 per cent of the property value. Most of these lenders only apply it to a mortgage with a loan-to-value (LTV - the percentage of the property price you wish to borrow) of 91 per cent or more, so if you have a 10 per cent deposit, you should evade this charge.
The size of the HLC depends on the size of the loan. For example, if you have a five per cent deposit, the typical higher lending charge on £100,000 mortgage is around £1,500, but on a £200,000 mortgage it would be around £3,000.
(See our mortgage feestable.)

Insurance penalty

Mortgage lenders require you to take out buildings insurance so that, if your property burns down or is destroyed, their asset is protected. In the past, you were free to take out this insurance with any provider. Nowadays, some lenders want to sell you their own insurance and will penalise you with a £25 fee if you decide to go elsewhere.
(See our mortgage feestable.)

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CHAPs fee

The CHAPS (Clearing House Automated Payment System) fee, also known as a telegraphic transfer fee, is supposed to cover the administration costs of transferring the lender's money to your solicitor. The cost nowadays is likely to be only a few pounds, and while some lenders may charge more than this, others do not charge anything at all so it's worth checking your lender's policy.

Early repayment charge

An Early Repayment Charge (ERC) usually applies to fixed and discounted variable rate mortgages. Often, they are calculated as a percentage of the outstanding loan. You usually only have to pay an ERC if you want to pay off your loan during the discounted or fixed period of your mortgage deal. But it is still essential to look at how long an ERC will apply to the mortgage, and whether it decreases with time. Your circumstances could change, so the more flexibility you have, the better.

Most fixed deals nowadays do not come with any overhang. This means that ERCs do not apply once the rate converts to the SVR, so you are free to remortgage without paying a penalty. Watch out for deals that do have an overhang as they may cost you dearly in the long run.

Exit fee

An exit fee is a charge levied by the lender when you redeem your mortgage, either because you have finished paying it off or because you want to switch to another lender.

The cost of an exit fee has more than quadrupled over the past decade. In 1996, the average exit fee was around £50 and today, it is typically around £275, although some lenders will charge less than this, or even nothing at all.

The Financial Services Authority (FSA), which regulates the mortgage industry, recently forced lenders to offer refunds to past and existing customers whose original mortgage contract states that they will pay a smaller exit fee.

This means that, no matter when you redeem your mortgage, you should not have to pay a higher exit fee than the current one stated on your contract.

If you have ever paid a higher exit fee than you expected to, you should contact that lender and ask it to refund you the difference between what you paid and the original sum you expected to pay.

Legal fee

When you take out a mortgage, the lender incurs legal costs, which are usually around £200. Most lenders will expect you to pay for these costs. The lender does not decide what the charge will be, it is set by the solicitor that handles the work on behalf of the lender.

If you are moving home, the lender usually engages the same solicitor that you are dealing with anyway. Your solicitor will ask you whether you are taking out a mortgage and most automatically add the lender's costs onto their fees before quoting you a figure. This means that, no matter which lender you go for, your legal fees are unlikely to be any higher than the original quote from your solicitor.

Look out for 'free legals'. This type of incentive will cover the legal costs associated with the mortgage, but not with moving home, which is why they are often only offered with remortgage products.

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Beware best buy tables

The deals in best buy tables published in newspapers are usually ordered according to the lowest interest rate on offer. This might seem logical, but lenders who offer very cheap rates frequently offset this by increasing the size of the fees attached to the deal.

What the best buy tables aren't telling us...

Early Repayment Charges are often left out of the tables or hidden away in the small print. Limits on the maximum loan size and regional restrictions are also often not shown.

Some lenders will charge you a significant sum if you change your mind after you have applied for a mortgage deal, while others don't charge anything. Unfortunately, best buy tables will not usually tell you either way, so you cannot compare them.

But don't dismiss best buy tables completely. They can give you a snapshot of the sort of competitive deals available, and so may be quite helpful to you.

Use them to check out the products available and browse through the different offers, but be careful to always check through the small print.

Calculate your mortgage fees

If you know the interest rate of the mortgage you are considering, it is easy to figure what your mortgage repayments will be using our mortgage rate calculator.

Figuring out the true cost of the mortgage, however, is more complex. With some lenders charging over £4,000 in fees and others charging nothing at all, it is important to factor in the fees attached to a deal in order to compare it and assess its competitiveness.

How to calculate your mortgage costs

To do this, you will need to add the cost of all the fees involved to the cost of your repayments.

Enter the cost of your repayments and the cost of the fees in the relevant boxes. This will allow you to see the true costs of each deal.

Calculate the true cost of a mortgage in four easy steps:

1. Find out the rates and fees of the deal you are interested in. Remember to include product, valuation, CHAPs and exit fees, as well as higher lending charges and insurance penalties.

2. Calculate the repayments per month using our range of free mortgage calculators.

3. Multiply these repayments by the number of months you plan to stick to the deal (so 24 months for a two-year fixed rate).

4. Add on the costs of the total fees. This will give a true comparison of the mortgage.

If these steps seem daunting, speak to a mortgage broker who will work everything out for you.

Key mortgage fees table

We asked the top 10 lenders to give details of the key fees they would charge a typical borrower taking out a two-year fixed rate on a £180,000 property with a 10 per cent deposit. The results are shown in our Key mortgage fees table.

Mortgage fees case study

Alan Farley, a 53 year-old direct mail business owner, has a one-bedroom coach house in Brighton. He recently opted for a fee-free mortgage deal from Market Harborough Building Society.

"The interest rate might have been higher but mortgage fees have gone up so much recently that, overall, the cost of my mortgage was lower than the other deals which charged fees," Alan explains.

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