can anyone explain product fees and application fees?

spaceboy

Why do they exist and is it usually cheaper to pay they up front?

[Deleted User]

Personally I'd always add the product fee to the loan, then overpay it once the mortgage starts (subject to affordability/room within Max Borrowing etc).

If you pay the product fee upfront, not everyone is very prompt at refunding said fee if there are issues down the loan (app falls through etc). If you have plans to overpay say 10% per year, adding a product fee would scupper those calculations though.

Application fees - normally non-refundable. Just to process/consider the app. Sometimes included within the valuation fee (e.g. val would be £300, they charge £500 and say it's inclusive of an app fee). ACG gave a good example a few months back, at smaller lenders it helps focus the mind of applicants a bit - especially if it's a poor quality case

Not sure why product fees exist, guess it's an easy way to effectively raise interest rates but still be top of the best buy tables! £1,995 but a market leading fixed rate for 2 years can trick people if they don't do a proper comparison/get proper advise.

spaceboy

For example HSBC do fee saver mortgages which means no booking fee, no standard valuation fee, no completion fee. On the face if it it looks better value than the similar mortages with fees so why are both offered?

[Deleted User]

Fee-Free are generally targeted at FTB/low-deposit. Interest rates for those would usually be higher than the identical product (same end date etc, but with a fee).

I compared 5 or 6 modest mortgages last week @ about £100k across 2 lenders (varying fee levels) and over a 3 year fix there wasn't really much difference at all.

So I'd say some of it certainly comes down to whether applicants physically have the spare cash to pay a val fee etc! If the property falls through and it's not a fees-free product, you then pay that again...

On smaller loans, no product fee with higher interest rate is almost certainly better. Even say 1% more on £50k over 3 years is minimal compared to a £995 fee.

£800k loan and the situation reverses, compared to a fee-free £995 would look like a bargain then (even if you add it to the loan and pay interest on it).

Some lenders will charge both, and quite hefty fees at that, but they are generally sub-prime (Vida etc). Wouldn't surprise me if it was like sheep - 1 lender added a fee and everyone else thought "oh, that's a great idea" and followed!

spaceboy

Thanks. My mortgage is about £80k.

getmore4less

£50k 1% 3years is a saving of upto £1500 that is more than a £995 fee.

[Deleted User]

1% was a very high figure - generally differences are what, 0.5%? If that. Probably should've added that up first mind!!

I'm on Nationwide now for my own mortgage - 69k over 40 years on 3 year fix.

3 year fix @ 2.19%, £999 fee. £7772.76 paid over 3 years excluding product fee (So £8,771 plus interest really if it's added to loan).

Or

3 year fix @ 2.49%, no fee. £8,177.76.

Overall cost for comparison (although there are limitations to that metric) is the same, which does show why it's so important to compare the total cost over the deal period - something Nwide actually do well (but do other lenders?)

Upping the mortgage to £80k in line with OPs -

£9011.88 + £999 = £10,010

Or £9,481

Up it to £200k and it's £23,528 (with fee) or £23,704.20 without so hardly any difference at that level with that lender.

Up it to a £400k and the savings really start to set in:

Fees: £45,059.76 + £999

Or £47,408.40

getmore4less

You have ignored the outstanding balance.

edit to add the detail

I'm on Nationwide now for my own mortgage - 69k over 40 years on 3 year fix.

3 year fix @ 2.19%, £999 fee. £7772.76 paid over 3 years excluding product fee (So £8,771 plus interest really if it's added to loan).

Or

3 year fix @ 2.49%, no fee. £8,177.76.

outstanding balance after 3 years

£69k @ 2.19% £215.91pm £65,655
£69k @ 2.49% £227.17pm £65,864

over £200 not accounted for

spaceboy

imo it needs to be easier to compare mortgage products

getmore4less

It can't get much simpler.

spaceboy

getmore4less wrote: »

It can't get much simpler.

It could show how much is still owed after the fixed term ends for each product.