What Does It Mean to Add Fees to a Loan?
Adding fees to a loan means incorporating the costs associated with obtaining a mortgage, such as arrangement fees, legal fees, or valuation fees, into the total loan amount. Instead of paying these fees upfront, they get added to the mortgage balance and repaid over the life of the loan. While this option can be convenient, it increases the overall amount you owe and the interest you pay.
How Does Adding Fees to a Loan Work?
When you choose to add fees to your loan, the lender calculates the total mortgage amount including both the principal and the fees. This means:
• Your monthly repayments will increase.
• The total cost of the loan over time will rise due to interest on the additional amount.
For example, if your mortgage fee is £1,000 and you add this to the mortgage, you’ll pay interest on that £1,000 as well.
When Should You Consider Adding Fees to a Loan?
Adding fees to your loan is ideal when:
• You don’t have enough upfront cash to cover fees.
• You want to keep your initial out-of-pocket expenses low.
However, it’s important to weigh this against the long-term costs of increasing your mortgage balance.
The Drawbacks of Adding Fees
• Higher total cost: You’ll end up paying interest on the fees, increasing the total amount you repay.
• Longer repayment period: Depending on your mortgage term, paying off the added fees could take decades.
