Arrangement Fee for Mortgage and Remortgage
Getting a mortgage or remortgaging an existing mortgage is an expensive process; homeowners or first-time buyers will have to pay a hefty sum in the form of various fees such as legal fees, mortgage brokers’ fees, booking fees, arrangement fees, and so on. However, mortgage lenders vary just as mortgage terms and conditions vary. While some lenders might absorb the various fees into the loan, others waive off all the fees, but charge a higher rate of interest. Homeowners should, therefore, study their mortgage products carefully before signing on the dotted line.
What Is an Arrangement Fee?
The Financial Services Authority (FSA) says that borrowers pay arrangement fees to mortgage lenders to reserve the mortgage loan for them. Since mortgage interest rates have fallen of late, mortgage lenders are trying to overcome the loss by charging higher arrangement fees.
The arrangement fees charged depends on the mortgage dealer and the mortgage product offered. While some mortgage dealers charge a few hundred pounds, others charge a small percentage of the mortgage loan as arrangement fees. Usually, fixed rate mortgages and discounted mortgages come with heavy arrangement fees. Usually, the arrangement fees are higher for mortgage deals with low rates of interest.
Homeowners’ Options
Before signing on the dotted line, homeowners or first-time buyers must check out the terms and conditions carefully, especially all those things written in fine print. Some mortgage lenders make it mandatory for homeowners to pay arrangement fees while submitting their mortgage applications; and in this case, you cannot expect a refund if you choose not to take the mortgage loan after all. Some mortgage lenders simply add the fees to the loan, and borrowers will have to pay interest on it throughout the term of the loan.
Homeowners or first-time buyers who approach mortgage brokers will have to pay some sort of arrangement fees to the broker as well as the lender. In this case, they must ascertain how much of the arrangement fees will be claimed by the lender and how much of it will be retained by the broker. There are ways to reduce the broker’s share by either negotiating or by getting a life insurance product through the same broker or any other method. You simply have to talk to your mortgage broker about it.
How Mortgage Rates are Related to Arrangement Fees
Since the UK mortgage market is intensely competitive, banks, financial institutions, mortgage lenders, and other lending bodies try to lure borrowers by creating attractive combinations of high arrangement fees and low rates of interest. Some lenders can even afford to give away mortgage loans at rates below the base rate fixed by the Bank of England just because they charge higher arrangement fees.
Borrowers should, therefore, check out the arrangement fees before getting exciting over low mortgage and remortgage rates. If you are looking for a large mortgage, this arrangement might work to your advantage; however, if you are looking for a smaller mortgage, you are better off paying the higher rates.