Borrowing money can be an expensive game.
But it’s not just the mortgage interest rates that you need to look out for. There’s a whole bunch of fees that you might need to pay aswell.
In this article we explain what a mortgage exit fee is, why it’s needed and when you might have to pay it.
Mortgage fees
When you buy a house using a mortgage there are a variety of fees that you will need to pay.
These don’t all come at once, some are during the mortgage application process and others are due on completion (moving in day).
When you apply for a mortgage you’re likely to have to pay; valuation fee, booking fee, mortgage broker fee.
Then the deposit, legal fees, stamp duty etc need paying just before completion.
We explain the most common fees in our Guide to Mortgage Fees.
But some fees don’t crop up until you have your mortgage, or perhaps when you pay off the mortgage.
One such cost is the Mortgage Exit Fee, or deeds release fee.
What is a mortgage exit fee?
The mortgage exit fee is payable when you close your mortgage account. It can also be called a deeds release fee, closure fee, exit fee or discharge fee.
This, plus all of the other fees, will be listed in your mortgage offer.
Think of it like a final admin fee.
The origins of this charge goes back to when lenders actually kept hold of your property title deeds. The deeds of your house prove ownership and mortgage lenders would place a legal charge against your house and safely store your deeds, until the mortgage debt is repaid.
Back then there was some admin work needed to find the deeds, remove the charge, and then give these back to you, once you had repaid the loan. Hence the name ‘deeds release fee’. Or some banks offered to keep them safe in the branch vault (for a small fee).
Now much of this is done electronically, and there’s no need for them to handle any deeds paperwork.
When is the mortgage exit fee triggered?
You would be liable for a mortgage exit fee when you:
- come to the end of the mortgage term
- repay the whole mortgage early
- remortgage over to a new lender
Let’s look at remortgaging as a quick example.
You have a mortgage with Barclays and intend to remortgage over to Coventry Building Society. From your annual mortgage statements you probably have a good idea what you owe Barclays.
But both the Coventry and their solicitor need an exact figure.
So they request a redemption statement from Barclays. This shows exactly what you need to pay to fully redeem (pay off) the debt.
The redemption statement will show:
- Outstanding mortgage balance.
- Any accrued interest.
- Early Repayment Charge (if applicable).
- Any other fees or charges due.
- Total amount required to redeem the mortgage.
How much is it?
These exit fees are not terribly expensive, just a bit annoying.
The costs will vary from lender to lender but a typical charge will be between £50-£200. Some lenders (inc. HSBC and Halifax) no longer charge an exit fee.
However, some lenders will charge you a Mortgage Account fee when the account is first opened, in some cases this will include the exit fee, in advance.
WhAT THE lenders SAY ABOUT EXIT FEES
Mortgage exit fee
You may have to pay this if:
- Your mortgage term comes to an end;
- You transfer the loan to another lender; or
- Transfer borrowing from one property to another.
This is payable either at the end of the mortgage term, or before the end of your mortgage term if you transfer the loan to another lender or another property (known as ‘redemption’).
Mortgage exit fee
You may have to pay this if:
- Your mortgage term comes to an end;
- You transfer the loan to another lender; or
- You transfer borrowing from one property to another.
This is payable either at the end of the mortgage term, or before the end of your mortgage term if you transfer the loan to another lender
or another property (known as ‘redemption’).
At Barclays, the charge is also payable where there is a requirement to redeem the existing mortgage i.e. Transfer of Equity or Porting
Fees when you exit your mortgage
Administration fee for exiting your mortgage: £0
At HSBC there’s no administration fee for exiting your mortgage. Some lenders do have an exit fee to cover administration costs.
Mortgage exit fee
You may have to pay this if:
- Your mortgage term comes to an end;
- You transfer the loan to another lender; or
- Transfer borrowing from one property to another.
This is payable either at the end of the mortgage term, or before the end of your mortgage term if you transfer the loan to another lender or another property (known as ‘redemption’). The Closing administration charge does not apply to mortgages entered into on or after 1st August 2007.
Mortgage exit fee
You may have to pay this if:
- You transfer the loan to another lender or pay off your mortgage in full more than 10 years
before the end of your term. - You may be charged a separate fee by your solicitor or licensed qualified conveyancer for their
work relating to redemption of the mortgage and discharge of the security.
Mortgage exit fee
You may have to pay this if:
- Your mortgage term comes to an end;
- You transfer the loan to another lender; or
- Transfer borrowing from one property to another.
This is payable either at the end of the mortgage term, or before the end of your mortgage term if you transfer the loan to another lender or another property (known as ‘redemption’).
This fee is not charged by Virgin Money when your mortgage term naturally comes to an end.
Is it the same as an early repayment charge?
No, a mortgage exit fee is not the same as an early repayment charge (ERC).
An Early Repayment Charge (ERC) is a fee you might incur if you decide to pay off a part or the entire mortgage earlier than agreed.
This charge is imposed by your lender to compensate for the interest they’ll lose due to your early repayment. ERCs are typically calculated as a percentage of your outstanding loan amount and may decrease over time or as the product term progresses.
These are two separate charges but it’s possible for you to be charged for one fee, but not the other, or both together.
It just depends on the lender.
An ERC could be triggered while you still have the mortgage. If you make an overpayment larger than permitted by the lender, they are likely to impose ERC fees on the excess.
You will find more useful information in our guide: “Early Repayment Charges“
How can you avoid this fee?
The mortgage discharge fees are not really avoidable. They are a fixed charge to close your mortgage account and these would have been specified in your original mortgage offer.
You could choose to go with a lender that does not charge an exit fee. There aren’t too many but HSBC and Halifax don’t charge.
To choose any mortgage deal it’s important to analyse all of the mortgage fees. It’s perfectly possible for a deal with a mortgage exit fee to be cheaper than a deal that doesn’t have this charge.
Do lenders still keep title deeds?
In the UK, property records have largely transitioned to digital formats managed by the Land Registry, reducing the necessity for physical deeds.
The practice of lenders holding title deeds has changed over time, especially with the digitisation of land registry records.
With digital Land Registry records, the necessity for holding physical deeds has considerably reduced. Banks or lenders who have recently lent on the security of registered land are unlikely to receive or retain the title deeds relating to such property.
The transition to digital record-keeping has been a gradual process, culminating in a significant shift on 30 November 2022, when it was announced that all applications, except for first registrations, could be lodged digitally, making the HM Land Registry ‘digital by default’.
