What Are the Different Mortgage Costs?

It’s probably fair to say that taking out a mortgage will be one of the most significant financial decisions of your life. Besides the simple fact that you’re buying your own PROPERTY, there’s a lot of prep that goes into it. From budgeting for a deposit to trying to improve your credit score, to shopping around for the right deal, to deciding what kind of mortgage is best for you… it’s a lot to think about.

For such a huge investment, one thing you want to be sure of is that you’re able to cover every cost. When most people think of the money needed for a mortgage, they think of the deposit and not a lot else. Unfortunately, there are a few more things you’ll need to make sure you factor into your budget before you apply for your mortgage or you’re going to end up in financial trouble before you even set foot in your new home.

As long as you do the proper research, you should be fine. With tools like Stamp Duty calculators, mortgage advisors, mortgage interest calculators and a whole hosts of other resources both on and offline, staying in control of your housing budget is less scary than you might think.

Your Deposit

Let’s get the big one out of the way first, your deposit.

A typical mortgage is going to need some kind of down payment to prove that you have the resources to pay for the rest of it over the years. How much you put down is entirely your choice, though the more of a deposit you have available, the more extensive variety of deals you’ll have available to you.

While it might be tempting to jump at mortgage rates that require smaller or even no deposit, make sure to think carefully. While it’s less money now, it’s probably going to end up being a lot more in the long run.

Stamp Duty

Stamp Duty is essential, yet it’s something that often slips potential homeowners minds. Like most taxes, Stamp Duty is both important and unavoidable, so make sure you’re aware of what you’ll owe when you purchase your property.

Covering both freehold and leasehold properties, this tax was implemented as a way for people to prove that they are now the legal owner of the property they purchased. If you don’t pay this tax, then legally, you will not have ownership of your new home.

Like many taxes, Stamp Duty rates don’t apply to everyone, so make sure you are aware if you fit the criteria to be charged.

If you are:

  • First-time buyers
  • Buying a property under £125,000
  • Buying a home that moves (caravan, houseboat etc)
  • Buying a property in Scotland or Wales

then Stamp Duty doesn’t affect you, though keep in mind that there are other taxes you may still be liable to pay like the Land and Buildings Transaction Tax in Scotland or the Land Transaction Tax in Wales.

Stamp Duty is calculated using the base value of your property, so the more expensive your home, the more you’ll be charged. Luckily, there are plenty of free Stamp Duty calculators you can find online and a mortgage broker will usually be more than happy to work it out for you as well, so there are no nasty surprises when you get your mortgage.

General Fees

When selling your home and buying a new one, there are more than a few little costs that may get overlooked when you’re setting your budget.

While there are quite a few of these, naturally not all of them will apply to everyone, so we’ll just cover the most common ones:

  • Arrangement Fee: The fee for your mortgage product. Can be anywhere up to £2,000
  • Valuation Fee: Your mortgage provider will value the property you wish to buy to make sure it’s worth the amount you want to borrow. Usually, £150-£1,500 depending on the expense of the property.
  • Booking Fee: A charge sometimes added when you apply for a mortgage deal. Usually £99-£250
  • Mortgage Account Fee: This fee pays for your lender’s administration costs in setting up and closing your mortgage deal. Usually £25-£50
  • Exit Charge: This is something you pay to your lender when you repay your mortgage. Usually £75-£300.

Mortgage Broker

Enlisting the help of a mortgage broker is entirely optional, but for the expert advice and guidance you’ll be given, it’s usually a sound investment.

Acting as the middle man between you and the lenders, a mortgage broker’s job is to take your details and find you the mortgage product that is most suitable for your situation. These services are far more impartial than going to a bank or building society as they will cover a much wider range of mortgages for you. As well as making sure they find you’re the right product, they can often give advice on other aspects of your budget as well, like the home insurance you’ll need and how much you’ll have to pay for Stamp Duty.

While all reputable mortgage brokers will charge a fee for their service (on average £500), compared to the amount you could be paying extra if you choose the wrong mortgage, it’s certainly a cost to consider.