Mortgage product fees

truescot

Just a quick straw poll of opinions. Mortgage fees - do most people pay them up front or add them to the loan?

My mortgage advisor (a family member) said that no-one ever pays them up front. But logic tells me if you can afford it - pay it, as its obviously interest free. I realise that the problem with that statement could be "if" you can afford it, as some fees are £1000+, but it seems that with all the other fees to be paid at house moving time, this should just be seen as another, and one that won't earn interest over the term of the mortgage. With solicitors fees of thousands, I think I'm just going to pay it and be done (ours is £999)

_Andy_

Standard advice would be to add them to the loan then overpay immediately once you complete.

Toughluck

Take into account worst case scenario, you pay £995 out of your bank account and then the lender says it isn't proceeding for whatever reason. Most of the time the lender will keep their money. As Andy said, safe bet, add it, and overpay immediately if the facility is there.

The_Unready

I paid mine up front last week (£1,499).

If you can afford it you should save money in the long run.

the Unready

truescot

Toughluck wrote: »

Take into account worst case scenario, you pay £995 out of your bank account and then the lender says it isn't proceeding for whatever reason. Most of the time the lender will keep their money. As Andy said, safe bet, add it, and overpay immediately if the facility is there.

What's the advantage of adding then overpaying? Does the fact that I will be interest only on the loan make a difference? When you overpay on IO what does the overpayment come off? I'm new to IO.

_Andy_

It'll come off the balance, i.e. you'll be reducing it back down to the amount you borrowed.

2latenow

I'm pondering the same thing... as I see it there are usually 3 choices with many lenders for a particular mortage -- e.g. I'm looking at my own re-fix and have the choice of 5.75% + 995 fee or 6.15% + 0 fee. Effectively the fee "paying" for the lower rate. Usually it seems the total cost is the same over the length of fix assuming the fee is paid immediately (but leave it on the mortgage and it'll become more expensive).

Hence the 3 choices:

1. Take the higher rate but with 0 fee
2. Take the lower rate & pay the fee up front
3. Take the lower rate & add the fee to the loan (choice to overpay immediately or leave it on the loan)

If you take (3) but instantly overpay, it amounts to the same as (2) but with the advantage offered by Toughluck.

My indecision at the moment is 1 or 2/3. As a starter I recognise that if there is any chance of wanting to end the fix during the fix period then paying the higher rate and no fee is better than taking the lower rate with the fee. [if that makes sense]

(this assumes interest only ... I'm not sure about repayment mortgage... but I would guess you have to specifically ensure any immediate "overpayment" is taken off the capital and specifically the fees account, depending on how the lender organises it)

truescot

It has taken me about 3 days and a bit of head scratching and dubious arithmetic to come to the conclusion that most comparable deals like this from the same lender work out about the same.!! For what it's worth, I am going for an option with lower fees but 0.9% higher rate, and overpaying the fee as soon as I've completed. Over the fix term of two years it would work our extremely marginally cheaper if rates stay the same (I know they won't but it's all you can base it on), and it has the added bonus that what I save on fees now I can spend on paint, or wallpaper, or carpets, or toilet roll holders, or beer.

Locoblade

They obviously don't always work out the same as it all depends on how big your mortgage is.

Most fees are fixed amounts so low fee / higher rate tend to suit smaller mortgages because the extra you pay due to the higher rate is less than the fee, whereas lower rate / higher fees are cheaper for those with larger mortgages for exactly the opposite, the saving in interest with a lower rate far outweighs the cost of the fee.