A reader asked me a very interesting question today about mortgage start up fees and costs, specifically relating to private mortgages. I got a little carried away with my answer and had to cut it short, but thought the topic was worthy of further explanation. The lending marketplace is increasingly full of all sorts of lenders offering lots of different deals – and it pays to take a close look at all of them as part of your product selection process.
What mortgage start up fees are for
Speak to a thousand lenders and you will likely receive a thousand different answers – the truth is, they are another way to take money from the pocket of the consumer (that’s you). It pays to remember that the mortgage lending business is one of the most competitive and profitable business related to both real estate and finance – and to many businesses, it’s a match made in heaven because the combination allows them to access vast numbers of customers, all with diverse needs and wants, and all willing to spend a lot of money on real estate.
For this reason, lenders have their hand out for their share – at every step of the way. Mortgage start up fees are the first of many charges you will incur when taking out a mortgage on a property – and the amount of money you will be charged will vary significantly between lenders. The lenders will tell you that they are an administrative fee to cover their initial setup costs and their own borrowing costs.
In reality, the large lenders are able to absorb these costs in the short term because they know they will be able to recoup the money through the life of the loan. In practical terms, mortgage set up fees are something dreamed so that the lenders are able to charge you more, sooner.
How much are mortgage set up fees?
These fees – establishment fees, start up fees – whatever you want to call them vary greatly. Most of the traditional mortgage lenders charge between about 1% to 2.25% of the value of the loan. Private lenders will often charge more than this, and the reader that asked me this question quoted a figure of 2.75% for their circumstances with a private lender.
Some lenders will offer zero start up fees for some of their loans, but be aware that what they give with one hand they take with the other – don’t think that it’s necessarily a better deal. Often the other charges more than compensate for the initial establishment fee.
Really, you need to do some shopping around and see what lenders offer what deals to you in your own personal circumstances. There is no one mortgage product that suits everyone, and that’s why it’s important to sit down and look at all your options before jumping in to make a decision. Kudos to the reader who went out and not only got the information, but then questioned it as well – good job, there should be more of it!
What’s your mortgage fees story? Are you happy to pay the initial start up fee in return for benefits down the track? Leave a comment to share your experience.