How do mortgage fees work?
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We are thinking about getting our first mortgage and have been looking online at the deals on offer. However, we are finding it difficult to understand what our mortgage might cost us because of the different fees being charged. Can you help us unravel it all, please?
Diane Fish of Smith & Pinching responds:
There are a number of different fees that are chargeable at different points in the process of setting up and managing a mortgage.
First, your mortgage will incur interest on the amount you have borrowed. This will be expressed as a percentage of the borrowed amount payable over a number of years. You can change how much you have to repay by changing the number of years that will elapse before the mortgage is paid off. The rate at which you repay your mortgage can be fixed for a number of years, or it can be variable and go up and down in tandem with a benchmark, typically the Bank of England’s base rate – although the rate you pay won’t be the same as the base rate.
A second set of charges will be levied by the mortgage lender when you set up the mortgage. This will probably include an arrangement/application fee and may include an additional booking fee. These fees can be paid upon application or, in most cases, are added to the mortgage lending. There will also be fees levied by the mortgage lender for carrying out a valuation and survey of your proposed new home.
Charges vary between mortgage lenders and it can be difficult to compare like for like as some lenders may charge lower fees but a higher interest rate, for example.
The above fees and charges go to your mortgage lender but there are other fees to take into account. Stamp Duty may be payable on the purchase: this is a tax paid to the government and will vary according to the price you are paying and when you complete your purchase. You may also incur legal costs for the conveyancing process.
If you use a mortgage adviser to identify the most suitable mortgage for you, he or she will also charge a fee. However, the adviser should be able to ensure that the terms of your mortgage are advantageous and this may effectively cancel out the additional cost. At Smith & Pinching, we charge a minimum advice fee for mortgages of £700.
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Your home may be repossessed if you do not keep up payments on your mortgage. There will be a fee for the mortgage advice. The precise amount will depend upon your circumstances, and the type of lending taken. Any opinions expressed in this article do not constitute advice.
For more information visit www.smith-pinching.co.uk