As the name suggests, you could incur a mortgage exit fee when you reach the end of the original term of the loan, if you repay all of your mortgage early or if you decide to remortgage with a different lender.
Depending on which lender you’re with it can be referred to by a whole host of different names; discharge fee, repayment administration fee, closure fee or deeds release fee, to name a few. Whatever title it’s given, a mortgage exit fee is basically a payment which covers all of the administration costs incurred for closing your mortgage account.
So, for example, let’s say you’ve been steadily making overpayments on your mortgage within the agreed limits (usually 10% to 20%) and have been able to repay all of the outstanding loan before the end of the original term. A mortgage exit fee could now be incurred before the lender closes the account and releases the property’s title deeds to you.
How much do mortgage exit fees cost?
The costs will vary from lender to lender but usually they’ll range from anywhere between £50 to £300. Some lenders – HSBC and Halifax, for example – don’t include an exit fee at all on any new applications. It’s also possible for lenders to include this fee at the start of your loan, often referred to as an ‘account fee’ on the charges tariff, rather than at the end.
If you’re keen to look at remortgaging options during the term of your loan, be sure to consider the impact any exit fees could have when switching providers. If, say, your current provider has a low exit fee, you may feel that the lower repayments available on a new deal from another lender more than cover this charge.
Is a mortgage exit fee the same as an early redemption charge?
No, they’re both separate charges. An early redemption charge (ERC) usually applies if you decide to come out of a specific interest rate deal (fixed rate, discounted or tracker) with your existing mortgage lender before the agreed term.
Typically, ERCs are charged as a percentage of the mortgage loan, ranging from 1% to 5% and they can also be incurred if you’ve made overpayments above the agreed allowance.
Let’s say you have a £150,000 mortgage on a 5-year fixed rate deal with an ERC of 2%. If you want to remortgage with another lender after 3 years, you will be charged £3,000 for switching before the end of the agreed term. If your current lender also has a mortgage exit fee of £100, the total cost would be £3,100 if you decide to go ahead.
As with exit fees, not all lenders include early redemption charges on every mortgage deal. Make sure you check through the charging tariffs of each lender with your broker so you understand how and when all of the fees can be applied before you submit your mortgage application.
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