When buying a property and taking out a mortgage there are numerous fees that must be paid. In this article I explore
- The various fees and what they are for
- Which fees are avoidable?
- What your options are for paying the necessary fees as well as how this effects the overall cost.
Your adviser or lender should have provided you with an ESIS document, they may also refer to this as the KFI which is older terminology for a previous document which used to illustrate the loan and the fees.
Here is an example of the fees section from an ESIS document which is will explain step by step.
Mortgage Product Fee
This fee is to access a specific mortgage product which normally comes with a promotional rate for a period of time. Its not always necessary or beneficial to pay a fee to the bank so do not worry if your own ESIS does not display a fee.
If you do have a fee your adviser will explain why this is. It may be that the particular lender does not have a fee free product or it could be in your best interest to pay a fee to access a cheaper interest rate for the duration of the initial product term. This is something the adviser or their software will calculate.
Here is a simplified table comparing two 5 years mortgages to borrow £200,000 from the same bank with options for paying a fee and without a fee.
ABC Bank Mortgage Products for £200,000
ABC Bank No Fee
ABC Bank £995 Fee
Total cost over 5 years (60 months including the fee)
I must stress the table above is a simplified example but hopefully if gives you and understanding of how paying a fee affects the total cost.
To obtain the total cost you multiple the product term (60 months) x the monthly payment (£xx) then add the Product fee (£xx)
Because paying a product fee gets you access to a better rate which in turn reduces the monthly payment it can be in your financial interest to do this.
In the example above it is £5,005 cheaper to choose the option with a fee.
This brings us on nicely to a follow on question most clients have which is when do I have to pay the fee? Normally with mortgage product fees you can simply add this to the loan to avoid the additional upfront expense. Its important that you understand adding the fee to the loan mean you will in effect be borrowing more money which will increase the monthly payment.
In the example above adding the £995 fee to the initial £200,000 mortgage would mean the monthly payment would increase by £4 to £852
Money Transfer Fee
This is normally a small amount between £8-35 to cover the cost of sending such a large amount