Arrangement fee added to mortgage

SmallFrowne

After a good while googling and perusing this forum I am still not 100% on what is probably a simple thing and I'm most likely an idiot for asking.

When you add a fee to the mortgage, all the pages I've seen say "this is payable over the term of the mortgage" - I'm looking at 2yr fixed rate deals, is the term 2yrs, or is it the 25yrs till the whole mortgage is paid off (from what i've read the 'term' could mean either!). Do I pay the fee off within the 2 yrs? That to me makes sense as if you want to remortgage after 2yrs you've paid off your fee.

Or is it that a loan for say £100,000 with a £1000 fee becomes £101,000 of debt to be paid off over 25yrs and when you remortgage you do so for £101,000 minus any capital repayments you've made in the 2yrs.

Any clarification will be much appreciated! Sorry for being a bafoon.

Thrugelmir

SmallFrowne wrote: »

Or is it that a loan for say £100,000 with a £1000 fee becomes £101,000 of debt to be paid off over 25yrs and when you remortgage you do so for £101,000 minus any capital repayments you've made in the 2yrs.

No need to apologise for asking questions. That's what the whole purpose of this forum is for.

The fees are added to the mortgage debt as you describe. If possible pay the fees in cash at the outset.

Borrowing that £1,000 would cost you another £754 over 25 years in interest ( at an interest rate of 5%)

SmallFrowne

Ah right thank you. Hehe that complicates comparisons a little bit. So overall (after 25yrs) it might be cheaper to go for a 4.86% 2 year fix (forgetting that it will change to a different rate after that) that has £950 worth of fees in total (assuming you pay them off at the outset like you say) than a 4.94% rate with no fees. But for the initial period of 2years it will be aprox £600 dearer. I think i'll go for the no fees

Thrugelmir

Follow on interest rate after the fixed term is important to consider.

As remortgaging to a different lender can be costly.

So SVR of the lender concerned is worth checking.

Wh05apk

NEVER pay the fees upfront, always add to the loan, then if the deal falls through you will not be out of pocket, most lenders will refund the fees if you have paid up front, but that may take a few weeks.

If you are concerned about paying interest on the fees, make a capital repayment on completion.

SmallFrowne

The plot thickens. Thanks for the help this is going to be a fun weekend!

Jimbo1976

Also check with your lender what rate is charged on fees you add to the mortgage. They used to be charged at SVR rather than at the pay rate.

lowlitmemory

Our fees are added to the loan BUT there is definitely no interest charged. I triple-checked. I can't remember exactly how much there was in fees but say it was £1000, then after 35 years (which is how long we have taken the mortgage for, with a 2-yr fixed rate) we need to pay whatever is left (hopefully nothing) and £1000. Nothing extra. If we pay off the mortgage early, before 35 years, we just pay the £1000 then. So check with the bank and get them to explain clearly to you.

StuC75

a couple of points re the fees adding situation...

Check not borderline on the Loan To Value ratio - in case those fees push above a 'bracket' on the rates.

Also adding to the loan can be sensible - since such fees are often non refundable if the sale falls through (for whatever reason) and theyve been paid upfront.. So it can save costs if you decided to pull out of the sale..

bigadaj

lowlitmemory wrote: »

Our fees are added to the loan BUT there is definitely no interest charged. I triple-checked. I can't remember exactly how much there was in fees but say it was £1000, then after 35 years (which is how long we have taken the mortgage for, with a 2-yr fixed rate) we need to pay whatever is left (hopefully nothing) and £1000. Nothing extra. If we pay off the mortgage early, before 35 years, we just pay the £1000 then. So check with the bank and get them to explain clearly to you.

Are you sure, sounds very unlikely. Who is your lender, interest free 35 year loans sound like a great deal to me.