Mortgage Costs

When you think about mortgage costs, you normally only think about monthly payments. However, there are a multitude of other costs to consider as well. Some are more straightforward than others…..

1. Application Fees

For most of the best mortgage deals, a mortgage lender will charge an additional fee. This can be from as little as £200 but can reach up to £600. Essentially, this is a way that mortgage lenders can manipulate the Best Buys tables, which are primarily based on interest rates. By recouping some money with a higher application fee, a lender can afford to offer you a lower interest rate, therefore making them appear higher on the Best Buy lists.

2. Valuation fees and surveys

Mortgage lenders like to satisfy themselves that you are paying a fair price for your home. After all, if you pay too much for a property, and then can’t meet the mortgage payments, they will be left with a shortfall. So, you may have to pay a few hundred pounds for a valuation. The price could rise to the thousands for a more expensive home.

It may also be a good idea to pay out for a survey of the property you are buying for that extra assurance on the structure. There are three levels of survey you can go for:
A basic one will cost about £200, a more in depth Home buyers Report will cost you around £400-£500 and a full structural survey will cost around £800.

3. Solicitors fees

Everybody knows but we thought it best to spell it out….Lawyers cost a lot of money! You can expect to pay around £500-£1000 for legal bills in relation to buying your property.

4. Mortgage indemnity guarantee (MIG)

This is an insurance policy that protects your lender if you should fail to keep up re-payments, your home gets re-possessed and sells for less than the mortgage is worth. You will probably be asked to pay it if you put down a relatively small deposit of 25% or less. It can also be known as mortgage indemnity premium (MIP). Many lenders have stopped charging this fee however. Our advice would be to avoid those lenders that do charge an MIG.

5. Exit fees

Lenders have recently been increasing their exit fees. This is to deter you from remortgaging to get a better deal. These fees will apply normally to people who close their mortgage before the end of it’s term, for example if you move your mortgage to another lender. Some lenders can charge anywhere between £200 -£300.

6. Redemption penalties

It can take a special deal on a mortgage to entice you through the door in the first place. Once the lender has secured your custom they might then lock you in beyond the term of the special deal they offered you. They may offer a reduced rate of interest for the first two years then lock you in for three years on their more expensive standard variable rate. Normally, these fees are stated as a percentage of your original mortgage amount, often reducing by a percentage point each year.

Redemption fees that apply during the period of a special deal are commonplace and usually don’t cause concern. However, fees that apply after this honeymoon period are another matter. Lenders that charge such fees are best avoided. Another thing to watch out for are cashback deals. Some lenders reserve the right to claim part of this money back if you decide to switch mortgages within a certain timescale.

7. Home and contents insurance.

I you go for a mortgage that requires you to insure your property through them, you will undoubtedly be paying way too much as this is how lenders get their big commission. It would be more wise to go for home and contents insurance elsewhere, you will get better more comprehensive cover for less money.

8. Life insurance

Some lenders will insist that you take out a life assurance policy to cover the value of your home. Others will not, so this may be an additional cost you’ll have to factor in your calculations. Again, getting life insurance somewhere other than your mortgage lender will normally save you money.

9. Mortgage payment protection insurance

This form of income protection insurance is designed to help pay your mortgage if you become unemployed, have an accident or fall seriously ill. The more circumstances you wish to cover, the more expensive the monthly premiums. Once again, you would generally be better not to buy ,this policy from your lender.

10. Stamp duty

This is the biggest and most unavoidable cost of all. Currently the charges go as follows:
1% for properties valued at £125,001 to £250,000
3% for properties valued at £250,001 to £500,000
4% for properties £500,001 and above.

(percentage bands are charged on the full value of the property).