Mortgage costs will vary depending on the lender,
the mortgage type being applied for, the total amount being
borrowed and the amount you are borrowing as a percentage
of the value of your home.
The additional costs charged by mortgage lenders can usually
be added to the loan. However, this means you will end up
paying interest on the additional costs over the full period
of the mortgage, so it is best to pay the fees up front
where possible. Some fees, such as arrangement fees, usually
accompany the more competitive mortgage products.
When choosing a mortgage you will need to weigh
up the benefits of the competitive interest rates against
any additional costs that may be charged. Keep an eye out
for lenders who will reimburse you for one or more of the
costs below on successful completion of the mortgage. Unfortunately,
some lenders will use different terminology to the typical
terms used below. If you are unsure what a lender's fee
relates to then ask them.
List of Mortgage Costs
Below is a list of the mortgage costs you should
always check when choosing a mortgage. This list relates
to mortgage costs only. There are of course many other costs
involved in moving or buying a new home, including legal
costs, removal costs, estate agent's commission (for sellers)
etc.
Arrangement Fee
Also referred to as the administration fee, the arrangement
fee is charged to cover the lender's cost of setting up
the mortgage. It is payable on completion of the mortgage
and is usually charged when applying for a fixed, discount,
capped or cashback mortgage.
Application Fee
An application fee is less common and is charged for just
applying for a mortgage. It is payable at the time the mortgage
application is made. According to mortgage lenders, the
purpose of this fee is to restrict applications to serious
applicants only.
A MIG premium
Is usually levied when the amount you are borrowing as
a percentage of the value of your home (the LTV percentage)
is fairly high, typically greater than 90%. However, some
lenders will charge a MIG premium even if the LTV is as
low as 75%. Other lenders will not charge a MIG premium,
regardless of the LTV percentage.
Valuation Fee
Lenders will usually require your new home to be valued
in order to confirm that the property is worth at least
the value of the amount to be borrowed. This helps to protect
the lender in the event that you default on the mortgage.
Early Redemption Penalty
An early redemption penalty is a charge that is made if
you switch your mortgage to another lender within a predefined
period. The charge can be as much as the value of six months
mortgage repayments. The period over which the early redemption
penalty applies may be for the fixed, discounted or capped
period only or may apply for several years afterwards, with
penalties reducing as each year passes. You should be aware
that if you opt for a mortgage that has an early redemption
penalty period that extends beyond the fixed, discounted
or capped period you could be trapped in that lender's standard
variable rate for a number of years, and that rate may be
uncompetitive.
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