Whether you’re first taking out a mortgage or planning to remortgage to a better deal later down the line, there are normally fees to do so.
If you decide to remortgage when you reach the end of your current mortgage deal, don’t be surprised if your lender asks for a final fee to close your existing mortgage, even if your new mortgage deal is with the same lender. Similarly, if you’ve finally paid off your mortgage – after 25 or more years of repayments – you may also find you have to pay a fee to close your mortgage.
We’ve spent a bit of time looking at what the fees are, why lenders charge them and when you may be asked to pay them.
Early Repayment Charge
If you find yourself in the position to pay off your mortgage in full – whether this is through a lump sum pension payout, an unexpected windfall or a work bonus – you might choose to settle it early. Or you may simply have found a better deal and want to remortgage.
Either way, if you end your mortgage early you may be asked to pay an Early Repayment Charge (ERC). This is an extra cost to take into account when you’re working out whether it will be worth switching your deal or repaying your loan early. ERCs don’t usually apply for the whole term of the mortgage – normally just for the length of the initial fixed rate or discounted period.
The ERC will typically cost between 1-5% of your full mortgage amount (some lenders charge a percentage of the remaining balance instead of the initial amount). For example, if you took your initial mortgage out for £100,000 and your ERC is 3% of the initial balance, your ERC on this mortgage would be £3,000.
So if you’re settling early to move your mortgage on to a better deal, you’ll need to figure out whether it’s worth moving, once you take into account any ERC as well as the set up fees that come with a new mortgage. On the surface it might look like a better deal but when you look in more detail, you might find it’ll cost you more so it pays to do your sums carefully.
Even if you don’t repay your mortgage early and continue paying it until the end of the term – which could be 25 years or more – unfortunately you don’t get to dodge fees then either.
It’s common for lenders to charge a fee when you finally clear your mortgage – for admin, staff and the legal costs of the paperwork associated with ending your loan and transferring full ownership of your home to you (the lender has to release its “charge” on your property).
This exit fee comes under a number of different names – completion fee, deeds release fee or exit administration fee – and typically will cost between £50 and £200. Of course, whilst you are unlikely to be delighted to have to shell out even more, at least you have the satisfaction of finally owning you home!
CML mortgage tariff
To help you understand the fees you’re paying on your mortgage, the Council of Mortgage Lenders (CML) has worked with its members to launch a simplified tariff of mortgage charges. The lenders involved have all agreed to use the same names for all their charges, which is designed to make it easier for customers to compare costs across providers – you can check out the details here.
We hope that helps you understand what fees may apply when you close your mortgage. To see how this will affect you and your mortgage, check your offer letter or get in touch with your lender.
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Intelligent Lending Ltd (Credit Broker). Capital One is the exclusive lender.