Can the bank charge you a fee for arranging a mortgage? Is there a mandatory fee when a bank arranges a mortgage? Who is liable for the costs of arranging a mortgage? There's a lot of uncertainty surrounding the matter of mortgage arrangement fees so we're going to try and clarify some of the most common queries that prospective borrowers have.
One of the costs involved in applying for or taking out a mortgage is the arrangement fee. This fee is a very small percentage that is added to the mortgage amount.
It is charged once only and covers the costs of the appraisal and risk assessment, and in general the work the bank has to carry out to process the mortgage.
When the bank receives a mortgage application, it usually has to carry out several analyses comparing different indicators: fees, repayment period, maximum financing amount, etc. When a prospective customer applies for a mortgage, the bank analyses their financial solvency, effort and capacity to pay back the loan. Depending on the results of these analyses, which are carried out by a specialist or an external manager, the bank will offer a specific type of mortgage with a specific instalment amount and interest rate. Armed with this information, the prospective customer can compare the conditions offered by another bank or financial institution and decide which one best suits their needs.
If the customer accepts the conditions and the bank finally approves the mortgage, it will charge a fee for the costs incurred in the analyses and any other services it may have offered. The arrangement fee is usually between 0.5% and 1% of the amount loaned and is included in the overall mortgage calculation.
Who is liable for the mortgage arrangement fee?
Before the new Mortgage Act was enacted in June 2019, banks could charge customers one fee for arranging the mortgage and another for the analyses involved. Under the terms of the new law, banks can only charge an arrangement fee, which must include all the costs they want to pass on to the customer.