What fees can apply to a second mortgage?
Second mortgage costs can include interest and, depending on the product and application, arrangement, valuation, legal, broker, account or early repayment charges. Not every fee applies to every mortgage, and amounts vary. The mortgage illustration, offer and agreement are the documents that show the specific costs and when they are payable.
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No figure above should be read as a fee that applies to any specific product; the individual documents confirm what actually applies.
How is interest different from a fee?
Interest is the cost charged on the amount borrowed under the mortgage's interest-rate terms. Fees and charges are separate amounts that may relate to arranging, valuing, administering or ending the mortgage. APRC is an annualised comparison figure, but the mortgage documents set out the individual rate and charge terms.
The APRC explained guide covers how this comparison figure relates to the interest rate and fees together.
What is an arrangement or lender fee?
An arrangement or lender fee may be charged for setting up or processing a mortgage. Whether it applies, how it is paid and whether it can be added to borrowing are product-specific matters. The relevant mortgage illustration and offer should show the fee and its treatment.
Whether an arrangement fee can be paid upfront or added to the loan amount depends on the specific product and lender policy, and it should be confirmed in the offer documents rather than assumed.
Is there a valuation or legal fee?
A lender may require a property valuation or legal work as part of a second charge application. The method, cost and who pays are not the same for every case. The application and mortgage documents should identify any relevant valuation, legal or other third-party costs.
The property valuation for a second mortgage guide explains the valuation methods a lender may use and how they can affect an application.
How can total second mortgage cost be compared?
The total cost of a second mortgage is affected by the amount borrowed, term, interest rate structure, repayment schedule and applicable fees or charges. APRC can support like-for-like comparisons, but it should be read with the mortgage illustration, monthly payment, total amount payable and early repayment terms.
A useful comparison looks at the amount, term, rate, APRC, fees, monthly payment and total amount payable together, rather than any single figure, alongside the wider context on second charge mortgage rates.
Sources
- MCOB handbook (Financial Conduct Authority)
- Second charge or second mortgages (MoneyHelper)
Frequently asked questions
Do all second mortgages have arrangement fees?
No. Whether an arrangement or lender fee applies, and how much it is, varies by product and lender. Some products may not charge one at all. The mortgage illustration and offer documents for the specific application will show whether an arrangement fee applies and how it can be paid.
Can valuation fees apply to a second mortgage?
A valuation fee may apply depending on the lender, the property and the valuation method used. Some valuations are automated and may not carry a separate visible fee, while others involve an inspection that can be charged. The application documents will show whether a valuation cost applies in a particular case.
What is an early repayment charge?
An early repayment charge is a charge that may apply if a mortgage is repaid early or overpaid beyond permitted limits. Not every second mortgage has the same early repayment terms. The agreement and illustration set out whether an early repayment charge applies, how it is calculated and the period it covers.
Does APRC show all second mortgage costs?
APRC is a comparison measure calculated under prescribed assumptions rather than a complete list of every possible cost. Some charges depend on later events, such as early repayment, and are set out separately in the agreement. The mortgage illustration remains the document to check for the full picture of costs.