The True Costs of Mortgages - Fees Revealed

Perhaps the only thing worse than a bill is an unexpected bill - and that holds true for mortgage fees, too.

Most people don't know much about mortgage fees when they take out a mortgage - I certainly didn't. The result of this is that far too many people are caught out by unexpected mortgage fees each year.

The truth is that although all possible fees are described somewhere in the small print, very few people read it all. Even if you do, what are the chances you'll remember it all in a few years' time?

In this article we'll take a look at the kinds of fees you need to know about, from the start of your mortgage through to the end.

In The Beginning…

You might think that a mortgage lender would be glad of your business as a new customer - after all, you are going to be paying them a lot of interest over the years.

These days, that just isn't enough for them and you are likely to be stung with an arrangement or reservation fee as well (they both mean the same thing).

Arrangement and reservation fees are simply a fee for setting up the mortgage - and they can range from nothing to well over a thousand pounds. The reason for this is simple - some lenders are increasing these fees so that they can advertise lower interest rates.

Cunning, isn't it?

There may be a few other small fees at the start, but it's the arrangement or reservation fee that can really sting.

Smooth Sailing?

Once your mortgage is underway, you should find that there are no more fees for a while. In fact, there probably won't be anymore until it's time to end the mortgage.

The only time this won't be true is if you get behind with your payments. At this time - when you can least afford it - your mortgage lender is likely to hit you with a staggering variety of fees.

These include fees for copies of your mortgage statements, fees for writing to you about your arrears and fees for unpaid direct debits and bounced cheques.

If the worst happens and your home is repossessed, you'll probably be charged a fee for that too.

That's right - all these fees when you can least afford it…

The Finishing Straight

Still, if you keep up with your payments and make it to the end of your mortgage with a clean record, surely your lender will reward you then?

No. You'll be charged an administration fee of some kind, probably a fee for releasing your deeds and possibly several others too. These are known as redemption fees.

If you pay off your mortgage early, things get even worse. Early repayment fees can be extremely high - sometimes a percentage of the amount you owe, or of the amount of interest you still have to pay.

They are usually highest during a special interest rate period - fixed or tracker, for example. When you sign up to a deal like this, make sure you understand what the early redemption/repayment fees are, just in case you need to sell sooner than expected.

Is It Really That Bad?

This article only provides an overview of mortgage fees, but you will find that almost all UK lenders charge fees very similar to those described here (plus a few more as well).

The secret is to make sure you take into account any arrangement or other startup fees when choosing a mortgage.

Sometimes, a mortgage with low fees and a slightly higher interest rate can be cheaper than one with a low rate and high fees. This is especially true if your mortgage is fairly small.