Mortgage arrangement fee

ForestBluebells

My mortgage broker recommended I add the arrangement fee (£999) to my mortgage as a security in case anything went wrong with the remortgage I wouldn’t lose my fee.  They said I could pay this immediately within the first 14 days.  I’ve phoned my new lender to pay the fee and they said I can pay it but it counts as a standard overpayment and I’m not actually paying off the fee.  This means my mortgage payments remain higher.  

Does this sound right? It’s not what I was expecting and I don’t feel the broker has been very clear with me and I wish I had just paid the fee upfront now 🤦‍♀️ Am I worse off from doing it the way I have?

kingstreet

You've paid it off, so presumably you are no longer paying interest on it...?

ForestBluebells

if I am just paying it off as a standard overpayment I’m still paying the higher monthly payment. Sorry I don’t understand if it’s the same overall I just know I was expecting to be able to pay it off and my monthly repayments would drop as if I hadn’t added the fee to the loan. I only did it as the broker said it was safer. Otherwise I’d have just paid it upfront 

Retired_Mortgage_Adviser

Imho, the broker gave you the right advice, maybe he/she could have explained the effect better. I almost always do the same to minimise the risk of losing the fee if the mortgage falls through for whatever reason.

Even if it counts as a standard overpayment, by paying making a £999 overpayment on day 1 you will no longer be paying interest on the fee amount added to your mortgage, thus putting you in the same position as if you had paid the fee upon application.

Please rest assured that you are not worse off. Mortgage interest accrues on a daily basis so (if it took you 3 days from the start of the mortgage to make the overpayment of £999), the most you are out of pocket by (assuming a mortgage interest rate of 2%) is 16p. 

ForestBluebells

Ah that’s reassuring thank you 🙏 I guess I just didn’t understand how it works but I’m glad ive not done the wrong thing I was quite pleased with how the new lender spoke about overpayments they recommended I pay anything extra each month I can to bring down the value of the loan and interest paid. I was surprised they were so positive about overpaying. Thank you for reassuring me. 

[Deleted User]

I had a case with Santander where we paid the £999 fee up front and the next day the client pulled out he purchase.  Santander wouldnt refund the £999 even though they hadnt even started underwriting the case.  Ended up escalating as far as I could to get that money back for the clients. 

Ever since that I always suggest adding the fee to the loan and then paying within 14 days.   Your payment will be £5 higher than if you didnt do it but since you pay the £999 overpayment, that £5 is just extra coming off the debt.  

ForestBluebells

Ok even better! So in reality I’m technically just overpaying by £5 a month already. So any extra overpayment is a bonus. Ok I feel much more reassured now thank you and it’s still cheaper than my old mortgage anyway 🙌 maybe I should setup to overpay the extra £6.83 that I’m saving each month between my old rate and my new rate to overpay. 

dunstonh

Does this sound right? It’s not what I was expecting and I don’t feel the broker has been very clear with me and I wish I had just paid the fee upfront now 🤦‍♀️ Am I worse off from doing it the way I have?
If you borrowed £100,000 and the fee was £999 then you borrowed £100,999.    It maybe that £100,000 is in sub account 01 and the £999  in sub account 02 but the total is the same.
if you paid the £999 then your £100,999 reduces to £100,000.  

Some lenders will allow you to specify the sub-account you wish to repay first.  Others will not.

The broker was correct adding it to the mortgage means you do not pay it if the house had fallen through. Whereas paying it up front is non-refundable.   You did what most people do.  Nothing to worry about.

Annastin

Retired_Mortgage_Adviser said:

Mortgage interest accrues on a daily basis so (if it took you 3 days from the start of the mortgage to make the overpayment of £999), the most you are out of pocket by (assuming a mortgage interest rate of 2%) is 16p.  

And if the 999 has been sitting in a 1% interest bearing current for the month between application and completion, the 16p is compensated by the 80p you earned in that period ;-)  

ForestBluebells

I kept it in my 0% current account 🤦‍♀️🙊 I’m going to drop the £1000 buffer money I keep in my current account to £500... or maybe less, i literally have never needed £1000 over my salary so I think £1000 buffer is too high especially as it earns no interest. Also my savings are partly in an easy access savings account so I can transfer if needed