There are a number of mortgage fees that you might need to pay if you are taking out a mortgage.
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:
- deeds fee;
- exit fee;
- redemption fee;
- sealing fee;
- vacating fee;
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.
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.