There are a number of mortgage fees that you might need to pay if you are taking out a mortgage.

Discharge Fees

The discharge fee is the administration fee that a mortgage provider charges to a borrower when a mortgage is repaid; for example, at the end of the mortgage term or when the loan is transferred to another lender. Confusingly, it is also known by several other names including:

Discharge Fees – Common Issues

In recent times, many financial institutions have increased their mortgage discharge fees by large amounts, often without informing existing borrowers, in an attempt to bolster their financial position and to discourage borrowers from changing mortgages. These increases in fee charges have led to protests from many borrowers and even claims that these increases might break the law because, in many cases, the new fees have been imposed without consulting current borrowers.

The Financial Services Authority (FSA) specifies that, in principle, the discharge fee should only cover the administration costs involved. Some mortgage brokers claim that the true cost to a financial institution of administering the discharge fee is around £50 per mortgage. This suggests that even though some mortgage providers have now increased their standard discharge fee to £200, this increase cannot be justified in terms of administration costs.

Discharge Fees – Variations in Practice

Not all mortgage providers impose high discharge fees. The Nationwide Building Society, for example, does not levy a discharge fee if the mortgage is being paid off within the last ten years of the mortgage term. Even if the loan is being repaid earlier, the building society will waive the discharge fee if another Nationwide mortgage is being taken on to replace it. Some other mortgage lenders have similar policies, but many do not.

A consensus is starting to build that in the interests of fairness the cost of the discharge fee should be agreed at the start of the mortgage term. As the average mortgage term, nowadays, is only around four years, this is unlikely to cause problems to mortgage providers, so long as the rate of inflation remains low.

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Arrangement Fees

The size of an arrangement fee can vary from a couple of hundred pounds up to one percent of the mortgage value, which can be a sizable sum. Nowadays, if you require a fixed rate or discounted mortgage you will probably have to pay an arrangement fee.

Arrangement Fees – Options

Before you decide upon a mortgage uk offer, you should look very carefully at any conditions associated with the arrangement fee. Some lenders expect you to pay the arrangement fee when you submit your mortgage application (and may be reluctant to refund it if you decide not to proceed with their mortgage offer). Other lenders add the arrangement fee to the loan, which means that you will be paying more interest.

If you are using a Mortgage broker to obtain a mortgage, it is likely that the broker will also charge a fee, so be sure to ascertain how much of the arrangement fees go to the broker and how much to the mortgage lender. Bear in mind that you may end up paying two separate lots of fees, one to broker and one to the mortgage provider. You may be able to reduce the broker’s fee by obtaining life insurance cover via the broker, with the broker’s commission on the life insurance policy offsetting some or all of the cost of the broker’s fee.

Arrangement Fees and Interest Rates

In today’s competitive mortgage market some financial institutions are using a combination of higher arrangement fees and lower interest rates to manipulate mortgage comparison web sites’ best buy tables. Some mortgage providers are offering loans at rates below the Bank of England Base Rate in order to improve their ranking in the comparison tables. They then attempt to balance the effects of this low rate by charging a high arrangement fee.

Borrowers requiring large mortgages (over £200,000) may be able to use this strategy to their advantage, but other borrowers would usually be better taking a mortgage with a lower arrangement fee and a slightly higher rate of interest. Whatever they decide, borrowers need to do their mortgage calculations carefully in order to obtain the best deal for their own personal circumstances.

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Early Redemption Fees

Depending on the type of mortgage involved, early redemption charges may be payable if a mortgage loan is paid off near the beginning of its term. Early redemption fees are often charged in the early years of many fixed rate, capped rate or cash back mortgages, when they are repaid early. Mortgage providers contend that these fees help them to reduce their exposure to risk caused by possible changes in interest rates and other issues.

Borrowers should also be aware that many financial institutions charge a discharge fee (sometimes known as a redemption fee, just to confuse matters!) when a mortgage loan is repaid at any time before the end of the mortgage term. Therefore, it is possible, under certain circumstances, that a lender may levy both a discharge fee and an early redemption fee.

Calculation of Early Redemption Fees

Early redemption fees are usually calculated in one of four different ways:

Often the level of the early redemption fee levied by the mortgage provider will reduce over time. For example, on a five-year fixed rate mortgage, , the early redemption charge might be six months' interest for the first year of the mortgage, five months' interest for the second year, four months' interest for the third year, three months' interest for the fourth year and two months' interest for the fifth year.

What are Early Redemption Penalties

Early redemption fees are often referred to as early redemption penalties. Strictly speaking, they are not penalties, because the mortgage lender has to provide details of any early redemption fees in the key financial information and the mortgage offer given to a prospective borrower. As is so often the case, it always pays to read and consider all the details when looking at a mortgage offer. The old saying, 'act in haste, repent at leisure' is particularly appropriate when it comes to choosing a mortgage that includes early redemption fees in its terms and conditions.

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What is the Land Registry

The Land Registry is a British government agency that administers the Land Register, which records all land registrations in England and Wales. Whenever land is sold, transferred or mortgaged, the details must be registered, compulsorily, with the Land Registry.

The Land Register

Each entry (known as the register of title) in the Land Register comprises several elements:

Land Registry Funding

The Land Registry is funded by the fees it charges to register changes in property ownership and also by fees for enquiries about individual properties. The level of fees charged for registering a change of ownership depends on the price of the property.

Land Registry Registration Fees

The current fees levied by the Land Registry for registering the purchase of a property are as follows:

The current fees levied by the Land Registry for registering the re-mortgage or transfer of a property are as follows:

The registration fee is normally paid by the purchaser’s (or borrower’s) solicitor, on their behalf.

Legal Fees

When purchasing or re-mortgaging a property you cannot avoid legal fees - but you may be able to reduce them under certain circumstances. Legal fees will normally be higher for a property purchase than for a re-mortgage.

Legal Fees – Property Purchase

Your solicitor or licensed conveyancer will charge you for administrative work carried out and will also arrange for payments to third parties, in order to facilitate the purchase of the property. Some or all of the following could be included:

Legal Fees – Re-mortgaging

From a legal standpoint, re-mortgaging should be a much simpler process than purchasing a property. Your solicitor’s costs should be considerably lower, as less administration is required than for a property purchase. However, the following items need to be covered:

How to Reduce Legal Costs

Much of the legal work that has to be undertaken during a property purchase is at the behest of the mortgage lender, in order to safeguard their interests. Therefore, it makes sense for the same solicitor to act for both the purchaser and the mortgage provider. Otherwise the purchaser will have to pay for the same work to be carried out by both their own solicitor and the mortgage lender’s solicitor, leading to a duplication of effort and unnecessary additional costs for the purchaser. Under normal circumstances, having the same solicitor acting for the purchaser and for the financial institution should not be difficult to arrange.

When re-mortgaging, the same principle holds true. However, because the re-mortgage market is very competitive, lenders will often include the cost of legal fees as a part of the package offered to encourage borrowers to choose their re-mortgage proposal.

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