Fixed-Rate Mortgage
A mortgage where the interest rate stays fixed for an agreed period.
Read term →What is Arrangement Fee?
An arrangement fee is a charge linked to a mortgage product. It can make a low-rate mortgage deal more expensive than it first appears.
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Definition
An arrangement fee is a fee charged by some lenders for setting up or securing a mortgage product. It can usually be paid upfront or added to the mortgage balance.
Arrangement fee in plain English
An arrangement fee is a mortgage product charge. It is separate from your deposit and separate from your normal monthly mortgage payment.
Some mortgage deals have no arrangement fee. Others charge a fixed fee, such as £999, £1,499 or another amount set by the lender. The fee can affect whether a deal is genuinely good value.
This is why the lowest interest rate is not always the cheapest mortgage. A lower-rate deal with a high fee may cost more overall than a slightly higher-rate deal with no fee.
How an arrangement fee works
Lenders usually show the arrangement fee alongside the mortgage rate. Depending on the product, the fee may be payable upfront, at completion, or added to the mortgage balance.
| Fee option | What it means | Why it matters |
|---|---|---|
| Paid upfront | You pay the fee from your own cash. | Your mortgage balance stays lower, but you need more money at the start. |
| Added to mortgage | The fee is added to the amount you borrow. | You may pay interest on the fee because it becomes part of the mortgage debt. |
| No fee | The product does not charge an arrangement fee. | The interest rate may be higher, so the total cost still needs checking. |
Important: adding the fee to the mortgage does not make it disappear. It usually increases the loan balance.
Arrangement fee example
Imagine two mortgage deals are available. Deal A has a lower interest rate but a £999 arrangement fee. Deal B has a slightly higher interest rate but no arrangement fee.
Deal A
Lower rate plus £999 fee
Deal B
Higher rate with no fee
Best deal?
Depends on the total cost, not just the rate
Deal A may be better if the lower rate saves more than the fee during the time you keep the deal. Deal B may be better if the fee is too high compared with the monthly saving.
Compare mortgage deals after fees
Use the Remortgage Comparison Calculator to compare monthly saving, net saving and the fee break-even point.
What fee break-even means
Fee break-even is the point where the monthly saving from a cheaper mortgage deal has recovered the arrangement fee.
Fee break-even months = arrangement fee divided by monthly saving.
Example: £999 fee divided by £80 monthly saving = about 12.5 months.
If you keep the deal beyond the break-even point, the fee may be worthwhile. If you move, switch or repay before the break-even point, the fee may not pay for itself.
Arrangement fee vs interest rate
The true comparison is the total cost over the period you expect to keep the deal. A mortgage rate on its own does not show the full picture.
| Deal type | May suit | Watch out for |
|---|---|---|
| Lower rate with fee | Larger mortgages where the monthly saving is meaningful. | The fee may not be recovered if the saving is small or the deal is short. |
| Higher rate with no fee | Smaller mortgages or borrowers who want lower upfront costs. | The higher rate may cost more if the deal is kept long enough. |
| Fee added to mortgage | Borrowers who want to reduce upfront cash needed. | The fee may attract mortgage interest over time. |
Why arrangement fees matter
Arrangement fees matter because they can affect the real cost of a mortgage deal. They can also affect how much cash you need at the start.
- They affect upfront cost: paying the fee upfront means more cash is needed early.
- They can increase the loan: adding the fee to the mortgage increases the balance.
- They affect total interest: interest may be charged on an added fee.
- They affect deal comparison: a low rate with a fee is not always cheaper.
- They affect break-even: the monthly saving needs to recover the fee.
Common arrangement fee mistakes
- Choosing the lowest rate without checking the arrangement fee.
- Assuming a fee-free mortgage is always cheaper.
- Adding the fee to the mortgage without considering interest on the added amount.
- Ignoring the fee break-even point.
- Comparing deals over the wrong time period.
- Forgetting other costs such as valuation, legal, broker or exit fees.
Practical step: compare the total cost over the deal period, not only the headline interest rate.