Can I add product fees to my mortgage?
A buy-to-let mortgage often has other costs associated with it, one of which is the mortgage product fee. These fees can range from anywhere between a few hundred and a few thousand pounds. Therefore, it’s understandable that some borrowers might want to attach the fee to the overall mortgage amount, but is this possible? And, more importantly, is it a good idea? Here, we take a look at whether you can add products fees to the mortgage and what that means for you.
What are product fees?
Mortgage product fees are also referred to as arrangement or booking fees and represent specific charges that lenders might impose when an individual takes out a mortgage. These fees play an important role in the mortgage landscape, but they aren’t uniform across the board.
Their presence differs considerably depending on the lender and the specific mortgage deal in question. For instance, while some lenders might offer mortgage options without any product fees, others have a structured fee system in place. Buy-to-let mortgages, in particular, are usually associated with higher product fees and can cost on average between £999-£3,000 but can be as high as £7,000.
Potential borrowers need to be aware of these fees as they can influence the overall cost of the mortgage. Understanding the nuances of product fees and what that means can help you make more informed decisions and select mortgage deals that align with your financial circumstances.
How do product fees work?
If a mortgage has a product fee, you ultimately have two options to pay it: upfront or spread over the mortgage. If you choose upfront, you pay the cost in one go before the mortgage begins.
Why do lenders have product fees?
Product fees serve multiple purposes. Primarily, they help lenders cover the administrative costs associated with processing and setting up a mortgage. This includes tasks like credit checks, property valuations,and paperwork handling.
Additionally, these fees can be used as a competitive tool. Lenders might offer lower interest rates paired with a product fee, striking a balance that attracts certain borrowers. Essentially, while product fees might seem like just another charge, they play a central role in the broader financial landscape of mortgages, helping lenders manage costs while offering varied mortgage products to cater to diverse customer needs.
What are the benefits of adding product fees to mortgages?
Why incorporate a product fee into your mortgage? The primary reason for anyone is convenience, especially if the initial product fee is on the higher side.
Incorporating the fee into your mortgage allows you to distribute the expense over the loan’s term. This approach can help remove the initial financial burden when purchasing a rental property as you don’t need to pay the figure in one setting.
However, an aspect worth considering is the long-term impact of spreading this cost. While adding the mortgage product fee might reduce initial costs, it also means accruing interest on that amount throughout the mortgage’s lifespan. So if you pay £500 in product fees, you’ll need to pay the interest on that amount.
When you’re thinking about adding product fees to your mortgage, you should weigh up the pros and cons of any big decision. At first glance, spreading the fee over the mortgage term might seem like a smart move.
It may feel like you’re easing that initial financial burden. But there may be a catch: you could end up paying interest on that fee, and if it’s thousands rather than hundreds of pounds, the impact on your monthly repayments will be noticeable.
Over time, those little bits of interest can really add up. It’s a bit like paying for a coffee every day – it might not seem much at first, but over a year, it’s a hefty sum. So, before committing, look at the entire picture and make sure it makes financial sense for you.
There’s a common myth that mortgages with product fees are inherently more expensive than those without. But that’s not always the case, and sometimes, mortgages with product fees might offer lower interest rates that balance out the overall cost. Therefore, it’s worth looking at the overall package and not just focusing on one component when choosing a buy-to-let mortgage or remortgage for your rental property.
How Molo approaches product fees
At Molo, we’re all about transparency and ensuring our customers are well-informed. We allow you to add the product fee to the mortgage amount or pay the cost upfront – whichever options suit you best.
Find out product fees in more details browsing our buy-to-let mortgage deals
Final thoughts: the importance of understanding product fee
Knowledge is power when it comes to product fees and how they affect your buy-to-let mortgage. Understanding mortgage product fees and their implications can help you make an informed decision that’s right for your financial situation. Whether you’re considering adding the fee to your mortgage or paying it upfront, always make sure you’ve got all the facts.
