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What is a higher lending fee on a mortgage?

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If you have a mortgage or are applying for one, you may have heard the term ‘higher lending fee’ banded about. With house prices in the UK rising considerably more than wages in recent years, many more people are finding they having to pay this higher lending fee which is applied when borrowing over a certain amount of a properties value.

Higher lending fee previously known as…

You may be more familiar with the term Mortgage Indemnity Guarantee which is what it was previous known as. This gave the impression that should you have to sell your house due to repossession and the sale price was less than that of the property value,  both lender and customer benefited from the ‘guarantee’. But that wasn’t the case. The mortgage indemnity is only an insurance for the lender and customers have no protection from being pursued  by the lender or insurer should there be a shortfall in money between the outstanding mortgage and sale price.  As a result, the name was changed to ‘Higher Lending Fee’ to quash any ambiguity.

Why do you pay a higher lending fee?

A higher lending fee is applied when you borrow over a certain percentage of your homes value, for example if you want to borrow 85% of the value and the higher lending fee is set to 80%, you will pay an additional charge based on the difference. Usually that charge is around 8% of the difference, not the total mortgage. The fee’s vary among lenders and the percentage rates between loan to value can differ greatly. Some may only charge a higher lending fee for mortgages over 90% of the value where as others will charge on as little as 75%.

Mortgage higher lending feeThe additional amount you pay can be quite a hefty sum, but around a third of lenders out there don’t charge any higher lending fees. However they may recoup these costs in other ways such as a higher interest rate or other hidden administration costs, so ensure you do your sums and check you are getting the right best for you. If at all possible, you should try and borrow as little as possible to keep you below the threshold for the fee. You may want to consider saving up for longer to have a bigger deposit or borrow money from relatives or friends who are able to help out. In some cases, you may want to think about taking out a personal loan to make up the difference, but be careful to work your costs out carefully and ensure that the loan repayments don’t end up costing you more than the higher lending fee.

When is the higher lending fee payable?

If you have to pay a higher lending fee, it is usually upon completion of the sale although it can be paid up front and if the lender allows, it can be added to the total cost of your mortgage. With so many costs to take into consideration when buying a house, you should mindful of all the hidden extra’s you may come across; your solicitors costs, searches, valuations, application fee’s, mortgage arrangement fee’s, money transfer fee’s, stamp duty and of course any higher lending fee’s… just when you thought that buying a house wasn’t expensive enough!

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About Rebecca Robinson

About Rebecca Robinson

After spending the last 8 years juggling life as a mum of two, wife and working full time as a Project Manager for a global telecommunications company, Rebecca Robinson made the decision to follow her love of writing and took the plunge; turning her passion into a full time career. Since becoming a full time writer, Rebecca has worked with various media and copy-writing companies and with the ability to make any topic relevant and interesting to the reader, now contributes to The Working Parent on articles ranging from credit cards to teenage relationships. Ever the optimist, Rebecca's dreams for the future include a house in the country filled with children, dogs and horses in the field!

Website: Rebecca Robinson

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