Mortgage Exit Fees

by Mark Johnston

When paying off or switching a mortgage borrowers are charged a fee, this is technically known as a mortgage exit administration fee (MEAF), supposedly to cover staff, legal and administration costs. Simply put any paperwork ranging from cancelling direct debits to transferring any paperwork to a new lender.

Mortgage exit administration fees can also be known by a variety of other names to confuse borrowers, including deed release fees, final administration fees, discharge fees and also final redemption fees. Therefore mortgage exit fees are commonly confused with ‘early redemption fees’, but these fees are not the same.

An early redemption fee is charged only if a borrower wants to leave their mortgage early, typically before their introductory deal expires and they are based on a percentage of the remaining mortgage balance.

Mortgage exit administration fees (MEAF) have accelerated quickly over the past few years, in 1997 these fees cost around £60, but now some have climbed up to nearly £300, making them 4 to 5 times higher than 10 years ago. Some examples of these increasing costs from lenders are: Abbey building society who charged £85 in January 2002 rising to £225 in January 2007, Northern rock charged £150 in January 2002 which rose to£250 in January 2007 and finally Skipton building society charged £75 in 2002 and £175 in 2007.

Application fees are also another fee that has increased dramatically over the past few years; typically they were around £300 but are often around £600 up to a whopping £1,000.

When these fees started to accelerate the financial service authority (FSA) noticed that many lenders were charging their customers more than was actually stated in their original contracts.

Some experts believe that it is arguable that mortgage exit administration fees (MEAF) are justified, the actual administration cost to a lender of closing down a mortgage is thought to be no more than £50, and so borrowers in theory could argue that they do not need to pay more than £50 regardless of what their contracts state.

The financial service authority (FSA) then decided to step in and told lenders that they had to justify the increases they had introduced. After this some lenders chose to stick with their current fee, some reduced them whilst others slashed the fee completely.

Following the financial service authority’s (FSA) decision borrowers should now know exactly what exit fees they are expected to pay or be given a clear idea of how the fee might vary in the future when they sign up for the mortgage.

With all this in mind, if a borrower switched their mortgage or paid it in full and therefore paid a high mortgage exit fee, it is very likely they were overcharged and are able to reclaim the cost back.

The majority of lenders are offering refunds on their mortgage exit administration fees (MEAF) that have been overcharged. Depending on the individual lenders the refund is usually all or a proportion of the difference between the charge as per the original contract and the amount they were actually charged. However lenders will not pay interest on the amount refunded.

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