A Typical Mortgage Best Buy Table
(Courtesy of mortgagesorter.co.uk)
Buying a new home can come with a much heftier price tag than you thought you were letting yourself in for. This comes in the form of hidden charges when you take out the mortgage. Your mortgage broker will invariably search for the deal with the lowest interest rate, but don't be fooled into thinking that the best interest rate is the best mortgage deal.
Most mortgage best buy tables are based on the best interest rate, so the one with the most competitive rate will come out on top. However, this doesn't include fees that could turn what looks like a good deal into a rip-off. There is so much different mortgage terminology flying around that it's difficult to tell what you're actually paying for, but here are some of added extras to be aware of:
This is what the lender charges you for arranging the mortgage. This is a hefty charge, typically somewhere in the region of £500. Because of this the lender will give you the option of adding it onto the loan. This is normally the best option, because some lenders will insist on charging the product fee even if the sale doesn't go through. You will pay interest on it of course. This fee can also be known as arrangement fee, application fee, booking fee and reservation fee.
This is only applicable when you intend to borrow more than 90% of the property's value and it can equal 1.6% of your mortgage loan. Although not all lenders insist upon this, the HLC supposedly compensates the lender for the higher risk of advancing a loan to a buyer with a smaller deposit. The HLC can also be known as Mortgage Indemnity Guarantee (MIG) and Mortgage Indemnity Premium.
Not surprisingly, you are obliged to take out buildings insurance when you take out a mortgage. Although you're free to browse the market for the best deal, you could actually be penalised, to the tune of £25 if you don't take out the insurance on offer from the lender.
Amazingly enough you are charged around £35 for the transaction of your money being transferred from lender to solicitor. It is also known as telegraphic transfer or CHAPS fee.
This is the substantial penalty that a mortgage lender will charge you if you decide to redeem your loan or remortgage before the specified term (normally 25 years). Some lenders will only charge you if you're in the initial discounted period. Others will have a sliding scale so that you will pay less the longer that you are with them and others, the ones to watch out for, will charge you the same fee at any stage of the loan. The ERC can be anything between £150 to £500. Either way, it's a substantial amount of money and well worth taking into account when you take out the loan. It is also known as a redemption penalty.
Very similar to the ERC, in that you have the privilege of paying this charge for clearing your mortgage early, or switching to a new lender. The cost of this fee has soared in the last decade leading the FSA (Financial Services Authority) to deem the rise in MEAF unfair. This has lead many lenders to partially refund the cost to borrowers or abolish the charge completely. Also known as sealing fee, deed release fee, final administration fee, discharge fee and final redemption fee. For details of how people are claiming back unfair charges with regard to ERC and MEAF see moneysavingexpert.com.
In summary, buying a home is a very expensive business. Of course, not all lenders will charge all these fees but read your mortgage contract carefully to be aware of the financial commitment you're taking on.