Mortgage Sorter | How higher-lending fees are worked out

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How higher-lending fees are worked out

The majority of mortgage lender apply a higher-lending fee if you borrow a high proportion of your property's value.

This can also be called an indemnity guarantee, additional security fee or mortgage advance premium.

(For more on this, read Higher-lending fees explained.)

The amount you'll be charged depends on the value of your property and how much you want to borrow.

Here's how they calculate it

Pay attention now, because this is quite complicated

Most lenders charge a higher-lending fee for loans of more than 90 per cent of property value.

But they generally base the figure they charge on the proportion you're borrowing over 75 per cent.

This means if you want a 91 per cent loan on a house worth £100,000, the higher-lending fee will be a percentage of the £16,000 difference between £75,000 and £91,000.

Different lenders use different percentages, but around 8 per cent is typical.

At this rate, the charge will be £1,280 for the privilege of borrowing £1,000 over the 90 per cent threshold.

If you want a 91 per cent loan on a house worth £150,000, this will rise to £1,920.

Here's a sneaky trick

To make you feel better about paying such a whopping fee, your lender will probably offer to add it to your mortgage, so you can pay it off gradually over the mortgage term.

Of course, it will charge interest on it at the same rate as the rest of your loan, which means you could end up paying several times the original fee.

Here's how to avoid it

You don't have to pay a higher-lending charge if you want to borrow a high proportion of your property's value.

For more on this, read How to avoid paying a higher-lending fee.

To find out more about early redemption penalties, read Early redemption penalties explained and How to avoid paying an early redemption penalty.

To read more on this subject please see the list below or your mortgage guide or your home buying guide

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Value of Property	£
		(eg 125000)

Borrow How Much?	£
		(eg 92500)

Your Mortgage Type

First time buyer?		Yes No
Have you found property?		Yes No
Country

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