Whether you are taking a mortgage for the first time or remortgaging, there will be some costs and fees involved. The following will vary in price and may or may not be charged, according to the deal you are applying for:

Arrangement fee

An arrangement fee, which can also be known as an administration or product fee, basically pays for the lender to set up the loan you have applied for. Arrangement fees have increased in recent years as lenders have all fought to carry the best headline rates of interest but still need to maintain profit margins. Now a typical arrangement fee might cost in the region of £999. Invariably, the lower the mortgage rate is, the larger the arrangement fee.

This also means that the arrangement fee can be charged as a percentage of the loan, which gets very expensive especially for larger mortgages.  A 2.5% fee for a £300,000 mortgage, for example, amounts to a whacking £7,500. Arrangement fees can be added to the loan, but this will entail paying interest over the entire term of the mortgage.

Higher lending charge (HLC)

Formerly known as the Mortgage Indemnity Guarantee (MIG), the Higher Lending Charge typically applies to loans bigger than either 90% or 95% of the property value – although not all lenders charge it. A HLC is designed to protect the mortgage lender in the event of a perceived ‘high risk’ borrower missing a mortgage payment or falling into arrears. But, unlike any other type of insurance, it is paid for by you – not by the protected party! The charging structure of HLCs is complex, in that it is usually levied as a percentage of the chunk of loan from 75% LTV up to what you are borrowing. The fee can be added to the loan.

Early Repayment Charges

Also known as redemption penalties, ERCs apply to borrowers who leave a mortgage deal during its agreed term – in year two of a five-year fix, for example. They are usually charged as a percentage of the loan outstanding, but they can also be of the loan repaid or of the loan when you took it out. Many ERCs are tiered, in such a way that it is 5% in the first year of a five-year fix, 4% in the second year and so on.

Valuation and Survey fees

For a lender to grant a mortgage, or a different lender to take on your existing mortgage, it will need to know that your property is adequate security for the loan – and this will depend on what it is worth. In this case you will need a valuation, which will be carried out by the lender’s team and charged according to the value of the house. The borrower is usually expected to pay the valuation fee up front, when they put the application form in, but if the mortgage does not complete it will not be refunded.

Exit fees

Following the Financial Services Authority’s investigation and refunding of millions of pounds' worth of unfair exit fees to borrowers in recent years, most mortgage lenders have now cut down on, or completely removed, these charges from the mortgage process. The ones remaining charge exit fees though at the point where borrowers pay off their mortgage, whether they are transferring the loan or lender or clearing the debt.

Completion fees

Some lenders charge completion fees, which are usually charged on the day that the borrower moves into their new home. It is rare that a lender will charge both arrangement and completion fees.

Deeds release fee

To leave your current lender, you will have to pay a deeds release fee even if you are not tied in and don’t have to pay redemption charges. This pays for your existing lender to release its legal charge over your property.

CashQuestions Guide to the Types of mortgage deal available

CashQuestions Guide to Remortgaging

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