Dingdongler

Hi

I am purchasing a property with a mortgage. The mortgage has an arrangement fee. If for whatever reason the sale falls through and I don't draw the monies will I still be liable for the arrangement fees?

The mortgage is with my own bank. When I arranged it I met with the mortgage guy and my 'personal banker'. I asked the question then and the advisor reckoned I could be liable but my personal banker whispered that I should add the arrangement fee to the mortgage. I got the impression from him that in that way I was less likely to be chased for the fee. But it was a nudge and a wink rather than clear advice.

Can anybody tell me what the deal is?

Thanks

Ste RB5138

Surely they cant charge you a arrangement fee if you don't withdraw any money... You never know with banks these days though.

Will be interesting to hear from an expert.

Midlife......

iTrader: (2)

Sounds like Naf West

Shaun

Dingdongler

It is indeed Naf West. Does that make a difference Shaun?

jonc

Bear in mind that if you add the arrangement fee to the mortgage, that fee will be subject to the whatever the mortgage rate is for the life of the mortgage.

Tidgy

there tends to be a nominal none returnable fee, been looking myself and nationwide charge £99 arrangement fee thats none refundable.

Dingdongler

No not really. I can overpay by 10% year and so can pay the fee off straight away

Dingdongler

But my arrangement fee is £1000, I wonder if it is none refundable then??

Tidgy

ouch, rip off by the sounds of it.

is that def a none refundable fee? some fees seem to have two, for example £99 non refundable + £400 fee that either goes on your mortgage or pay in one go at start.

jonc

It doesn't matter whether you over pay or not. You are adding an extra £1000 to your morgage and every payment you make for the life of the mortgage will include the capital+fee and then the interest on top of them combined. Basically depending on how much you borrow, the term and depending on the interest rate, that fee could cost you in total over an extra thousand or more in extra interest over the life of the mortgage.

Dingdongler

Maths has never been a strong point for me! But let's say the mortgage is £100000 and the fee £1000. So in total I borrow £101000.

On the very first month a repayment is due I pay an extra £1000.

Does that not now mean the arrangement fee is basically cleared and therefore I won't be paying any extra interest over the life of the mortgage because of the fee?

Thanks

jonc

If you paid an extra £1000 on your first payment, it may seem you have paid the fee off, but that overpayment will still be made up (capital+fee)+interest. So because the fee is in the mortgage, interest will still be charged on that extra thousand you borrowed. The key is not to look at the fee and mortgage as separate but rather as the total borrowed and this is what the interest is calculated is based on. Over the life of the mortgage, that fee could cost you £2000 (fee+interest) instead of £1000.

I would only add the fee to the mortgage if you are unable to pay fee outright.

Dingdongler

Jon, you'll have to excuse me for being thick but surely that can't be right.

Basically you are saying that even if I pay the £1000 back straight away I'll pay interest on it for life. But then why would anybody ever overpay their mortgage if they'll carry on paying interest on the entire amount ?

jonc

Interest is charged on the total borrowed over the lifetime of the mortgage. So yes, you are still paying interest on the fee even if you overpay your mortgage by a £1000.

I think your mistake is thinking that you can pay an extra £1000 and that somehow pays for the fee. It doesn't. The key is the total borrowed.

This might help you understand
http://www.thisismoney.co.uk/money/m...ges-rates.html

Midlife......

iTrader: (2)

Yep, typical Naf West for "private banking" customers. Preferential rates (apprantly) but sting you with £995 arrangement fee. I paid it off as I didnt want to be saddled with the extra interest.....

If there is a **** up and it doesn't go through there is a £95 administration fee payable.

That's how I remember it working 2 years ago when I arranged my mortgage with the Naf LOL

Shaun

Bristol98

Ding, I think the first overpayment of 1000 will actually consist of about 100 capital and the rest will be interest so could take 10-12 months to clear the fee...............thats my understanding of mortgages anyways!

Dingdongler

Thanks.

I will read more into it later (inc the link jon provided) but to take Jon's theory to the extreme: let's say the mortgage allowed unlimited over payment. If I then paid 50% of it back in the first.month are we saying that I continue to pay interest on 100% of the capital for the life of the mortgage? In which case what is the point of overpaying?

I must be missing something fundamental here.....

stevie boy

i would of probably wrongly thought an overpayment came off the capital??

njkmrs

Cant you just pay fee on your credit card ,then pay it off following month .Simples !!!
Doesnt affect your mortgage for next 10-20 yrs.

john banks

This is nonsense unless you have a mortgage where the interest is not calculated regularly enough that it penalises you unfairly.

I added the £995 arrangement fee to my mortgage.

I put nearly all my available funds into the mortgage a few days after it started and reduced the balance to about a quarter of what I borrowed with the intention of drawing down more of it later for building work. The interest is calculated daily and since I have been paying far less interest than I would be on the total amount borrowed.

So how am I in any worse position now than I would be had I paid the £995 arrangement fee from my cash? I'm not.

I would be in a better position had I not had the arrangement fee in the first place, but not because of a decision to add or not add it to the mortgage.

john banks

Put it this way, with three mortgages I've had, one current account mortgage, one offset and one (fairly) flexible (all with interest calculated daily), I could borrow £200000 and reduce the mortgage to £100000 straight away and it would have been no different to starting the mortgage at £100000 as none of the fees were a percentage of the original amount but fixed. Borrowing a bit more gives flexibility with a suitable product and with cashflow being self employed this is a huge help with tax bills, variable income, capital investment and disinvestment from the business as well as domestic building work or random car purchases.

Dingdongler

Thanks JB, I really thought I was going mad there. What JonC said wasn't making any sense to me.

Even if the interest isn't calculated daily (lets say monthly) the most I'll be out of pocket is a few quid if I pay back the £1000 in the first month.

I can afford to pay the £1000 upfront but don't want to have the hassle of having to claim it back off them should the sale fall through.

john banks

When I had a purchase that fell through the arrangement fee was also going to be added to the mortgage. I lost the valuation fee, but that was it. Depends on the terms and conditions, you need to check what you're signing for.

ScoobyWon't

£1000 arrangement fee? That's a lot of money to sign a bit of paper. Can you get a better deal elsewhere? Some offer deals with £99 arrangement fee or even no arrangement fees.

jonc

I stand by what I said. Adding the fee to the mortgage is just another way for the lender to get more money out of you. Also JB's advice is some what misleading and I would not borrow more than you have to, borrowing for cash flow for a business is not the same as the circumstances are completely different. If I were you I'd seek proper independent financial advice for your circumstances. HTH.

Dingdongler

Thanks SW, I'm well aware of the different deals out there and that my product has a highish arrangement fee. However, I have calculated the total cost of my loan (taking into acct the interest, and other fees) and it is competitive.

Dingdongler

You must be joking mate!

I'm old and ugly enough not to need 'financial advice' to choose a mortgage (or for most other things)

It's just that you threw me with what you said. With the greatest respect I think you are wrong. Though I accept that in general adding fees to mortgages is a bad idea and is a way for the lenders to make money.

That is not the case if you make the overpayment, which is my intention.

You need to think through the logic of what you are saying. Because if what you say is true, as an extreme example I could pay back £99,000 of my £100000 mortgage on day 1 and still pay interest on £100000 for 20 years.

Surely you can see that cannot be the case?

jonc

No that is not what I said, the repayment would consists of the capital+fee and the interest on both the fee and the capital. So if you paid 99k on an 100k, you will be left with 1k plus the interest on the 1k. I did not mean you will be charged interest on a 100k even when only 1k was left! All payments including overpayments will pay off a proportion of the capital+fee+interest, ie the amount you actually borrowed will go down.

What you are describing is similar to an interest only mortgage, ie you only pay the interest and the amount borrowed remains the same for the whole term so at the end of the mortgage term you still have to pay off the full capital borrowed.

Also note that some lenders structure the mortgage so that most of the payments in the first few years are mostly made up on interest and very little capital. This is usually in the period where you are in a benefit period, eg, fixed or discounted period. This is why you are usually tied in during this period so that the lenders get more money back should you default on the mortgage.

john banks

I'm in a discounted period and there is no front loading of interest, and I wouldn't select a mortgage where there was. I very much doubt Deep would have to either.

I also deride the IFA suggestion.

Deep you have it absolutely correct unless you have strange terms and conditions. Adding it onto the mortgage and then overpaying it to clear it is a zero sum game except for the duration where the fee is still on the mortgage balance before you've overpaid it where it will attract interest. There may be products where this is not the case, but you shouldn't be backed into one unless there is a clear advantage otherwise.

It sounds jonc that you either don't understand compound interest, capital and interest, amortisation, or can't explain it. Most people don't. In this case I'm certain of my position both theoretically and practically.

jonc

Well then I bow to your superior knowledge.....