You may think mortgage costs are simple, but there can be unexpected expenses
when it comes to setting up and organising a mortgage. It’s worth chatting to your mortgage broker or lender about the different options on offer, as the cheaper upfront costs may result in more expensive monthly charges.
Your mortgage rate concerns the percentage of interest you’ll pay on the mortgage amount you’re borrowing. Consider the rate and how much that will mean you pay every month, as well as the amount overall. When you get a fixed rate mortgage, you are tying in the amount you’ll pay per month for a certain length of time. When that time period ends, you’ll be on a Standard Variable Rate which can be higher. When you reach this point, you are advised to switch to another fixed rate to save money.
This is the cost of getting/arranging the mortgage. This is a one-off fee you pay to get the mortgage. This is usually in the thousands. Be aware that those with very low mortgage arrangement fees probably have a higher interest rate. Be sure to compare the two when making a choice on your mortgage. A higher fee usually means a lower interest rate.
You’ll often be given the opportunity to pay the fee immediately or add it to the cost of your mortgage. Bear in mind, again, that you’ll end up paying interest on any addition to your mortgage.
This is usually a couple of hundred pounds to secure your mortgage deal. Not all lenders charge this, or there may be a deal where this fee is waived. Be sure to consider this when you compare different lender offers.
In order for the mortgage lender to transfer the money to your solicitor, who will pass it on to the seller, they’ll often use a system called CHAPS. This stands for Clearing House Automated Payment System, and it allows them to send the payment for it to be received on the same day. Due to the speed and security, and the fact that it’s for large sums of money, lenders charge for this service. It is usually £20-£30.
In some cases your mortgage broker may take their payment from the lender that they recommend, or they may charge you for the service. Find this out in advance so there are no nasty surprises.
This can sometimes be free or included in the price of your mortgage, but it’s worth talking to a broker or the lender directly before you go ahead. If the price of the valuation isn’t included, it can range from anywhere from £150-£1,500.
A valuation is the assessment by the lender to ensure the property is worth what they’re lending you to buy it. It is not
the same as a survey, and you should still get your own independent survey to assess potential issues with the property.
Ones to be aware of for the future:
Overpayment/early repayment charges
Most mortgage lenders will have an amount they are happy for you to overpay on your mortgage. Overpayment allows you to cut down a bit more of the mortgage and can skim months off your repayments and save you significant amounts in interest.
It is not in the lender’s best interests to let you overpay too much, as they will lose out on the interest they make from your mortgage. As such, most of them have a cap on the amount you can repay. You can sometimes pay this monthly, or you can pay a lump sum off yearly.
Be sure that you know your overpayment limit and talk to your mortgage advisor about this. Fees can be between 1-5% of the amount you overpaid by. Considering you’re trying to pay off more of your mortgage, getting extra charges is not ideal – always be sure you know how much you’ve overpaid by and stay within the limits.
You may want to consider overpayment options when you’re looking at a mortgage, if you know you could afford to put a little more towards it every year.
If you decide you want to change to a different mortgage before your fixed rate period ends, you may end up having to pay an exit fee. In some cases, the quality of the interest rate on a new deal might be worth the exit fee – work out what the difference is. It’s worth considering how long your fixed deal goes on for and being aware of when it’s due to finish so you can give yourself time to get a great replacement.