Most mortgage lenders will charge an initial fee when you borrow from them.
They may call this a set-up, booking, reservation, arrangement or administration fee, and it could be anything from several hundred to several thousand pounds.
In most cases, it will be a flat fee, but some lenders prefer to charge a percentage of the sum you’re borrowing.
In a bid to make this more palatable, your lender will probably offer to let you add it to your loan.
This will allow you to pay it off gradually over your mortgage term.
The pros and cons of deferring
When you’re short of cash – and facing all sorts of other expenses, such as a deposit, legal and surveyor’s fees, stamp duty and so on – it might be very appealing to defer paying in this way.
But your lender will be the one who benefits.
This is because adding any fee to your loan allows it to charge interest on it.
And this could increase the amount you pay by hundreds of pounds over the course of your mortgage.
Say, for example, that you were taking out a repayment mortgage at an interest rate of 6 per cent over 25 years and this came with a £1,000 set-up fee.
By the time you cleared your mortgage, interest charges on this fee would mean you had actually repaid £1,932.
Other ways to cover the cost
If you can’t pay the initial fee up front, try borrowing the extra cash interest-free from a relative.
If no-one in your family can help, consider a low-cost personal loan.
At the time of writing, it was possible to borrow £1,000 over three years at around 7.5 per cent interest.
This would give a monthly repayment of £31 and a total cost of just under £1,120 – saving you a very worthwhile £812.
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