In this brief guide, we are going to talk about mortgage exit fees, what they are, when they are typically charged and how to avoid them if possible.
What are mortgage exit fees?
Mortgage exit fees are fees which mortgage lenders charge when you settle your mortgage early by paying off your mortgage balance in full. A mortgage exit fee is also known as a mortgage exit administration fee – MEAF.
A mortgage exit fee can either be an early repayment charge or a discount fee.
Mortgage exit fees are typically charged by mortgage lenders to deter borrowers from frequently switching mortgage products.
Mortgage exit fees also help mortgage lenders recoup any costs of closing a mortgage account.
How much are mortgage discharge fees?
Mortgage discharge fees are the fees a mortgage lender charges to release your title deeds which will allow you to switch our mortgage or sell your property.
A mortgage discharge fee will differ from one mortgage lender to another but you can expect the mortgage discharge fee to range from between £0 and £300.
Your mortgage lender may also charge you an early repayment or early termination fee which is a charge for when you pay the mortgage within a pre-designated timeframe.
For example, you may have to pay this if you are still within a fixed-rate mortgage term.
The good news is that the mortgage lender cannot charge you more than the losses incurred by the lender due to you terminating your mortgage early, by law.
If you feel the mortgage discharge or mortgage exit fees you are being charged are very expensive then complain to your mortgage lender and if you don’t feel like they have handled your complaint with care then you can complain to the financial ombudsman.
You can contact the financial ombudsman via post at:
Exchange Tower, Harbour Exchange, London, E14 9SR
By phone at 0800 023 4567
How much are mortgage exit fees?
Mortgage exit fees will differ from one mortgage lender to another and they will also differ based on the mortgage product you have.
A mortgage product with a lot of flexibility and a favourable rate may have much higher mortgage fees than a mortgage product without those features.
The cost of a mortgage exit fee will depend on some of the factors below:
- Your outstanding balance – if the outstanding balance on your mortgage is quite high then the mortgage exit fee may be high as some mortgage lenders impose a mortgage exit fee which is a percentage of the outstanding mortgage balance rather than a fixed fee.
- The mortgage term left – The mortgage term left may also affect how high the mortgage exit fee is. If you have a mortgage with a lot of the original mortgage term left then you can expect to pay a higher mortgage exit fee.
- If you are within a fixed introductory rate period – If you are still within your fixed introductory rate then you can expect to have a mortgage exit fee which is high. However, if the prevailing interest which you will switch to is much lower than your current rate than the mortgage exit fee could be even higher.
Knowing how much your mortgage fee is will allow you to make a decision on when a remortgage may be a good option and how to go about it.
When are mortgage exit fees typically charged?
Most borrowers will first come across mortgage exit fees when they are looking for a remortgage to a different mortgage lender.
However, if you looked at your key facts illustration document you may notice that mortgage exit fees are indeed mentioned.
Mortgage exit fees are usually charged on the below types of mortgages as they are viewed as favourable mortgages and the mortgage lender will prefer to keep the borrower for the duration of the mortgage term so they can make a profit on whatever loss they have incurred based on the flexibility or type of mortgage.
Mortgage products which typically have mortgage exit fees include:
- Fixed-rate mortgages- as they offer you the certainty of a mortgage rate for a certain term. This means if rates go up you will be safe and the mortgage lender will not benefit from this.
- Offset mortgages- Offset mortgages typically have mortgage exit fees. Offset mortgages allow you to reduce the interest charged on your account through a linked savings account.
- Flexible mortgages- these mortgages typically have mortgage exit fees as thy alow you to take payment holidays, overpay your mortgage, drawdown on your mortgage, the drawdown on any previous mortgage overpayments and even make reduced monthly mortgage repayments.
That being said, most mortgage lenders charge mortgage exit fees but the mortgage products above may have mortgage exit fees which are much higher than others.
How to avoid mortgage exit fees?
The easiest way to avoid a mortgage exit fee is to stay with your current mortgage ender but this may not always be the best financial option for you.
If you feel the mortgage exit fees make switching mortgages a pointless move then you could try to see if your mortgage lender has any mortgage products which could potentially meet your needs.
Mortgage lenders will usually waive any mortgage fees if you are remortgaging with them. This is especially the case, of the mortgage rates elsewhere, are much better than what they are offering.
If you are on a variable rate mortgage then you may be able to ask your mortgage lender to waive the fees. They may be ore willing to do this if mortgage rates haven’t changed since you took on your mortgage.
If the mortgage lender refuses to waive the mortgage exit fees then see if they will offer you some discount on the fee.
If you think you will switch mortgage often and remortgage often then avoid taking out products with high mortgage fees. This will allow you to switch mortgages without so much cost.
Thinking of remortgaging?
Use a mortgage broker
You may want to consider using an independent mortgage broker to get a mortgage.
Mortgage brokers are important as they can access mortgage products from across the whole of the market in some cases.
This could be over 11,000 mortgage products. This may have some advantages rather than going directly to a mortgage lender.
A mortgage broker will look to understand your financial circumstances and then provide recommendations on which mortgage products may be suitable for you based on your mortgage affordability.
After giving you these mortgage recommendations, most mortgage brokers will seek your consent to apply for a mortgage in principle.
This will allow you to shop for your home easier as more estate agents and sellers may take you seriously or it will give you confidence that your mortgage is indeed a possibility before you make a full mortgage application.
Once you have found a home you want to buy and are satisfied with the mortgage offer for your mortgage then the mortgage broker will then look to get you a mortgage offer.
This will come with a key facts illustration document which details out the features of your mortgage including how much you will pay per month.
It will also contain information on if there are any limits such as early repayment fees, or annual overpayment limits.
If you are happy with everything you can then go on to secure your mortgage with the help of a conveyancer.
Your conveyancer will manage the legal searches on the property to ensure there aren’t any issues with it.
They will oversee the sales agreement to ensure it is in your best interest, they will manage the transfer of mortgage funds, exchange contracts with the seller or their conveyancer and set a completion date with the seller or their conveyancer.
FAQs: Mortgage exit fees
Do I have to pay mortgage exit fees?
If your mortgage has mortgage exit fees then you will have to pay this mortgage exit fees except your mortgage lender waives them.
In this brief guide, we talked about mortgage exit fees, what they are, when they are typically charged and how to avoid them if possible.
If you have any questions or comments please let us know.
If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.
You can also contact the debt charity “Step Change” if you are in debt and need help.