Mortgage Exit Fees

While every effort's been made to ensure this article's accuracy, it isn't intended to be seen as legal advice and no liability can be accepted for any claimants who rely on the info given.

Have you switched mortgage or paid it in full in the last few years? If so, it's likely you were overcharged by your old lender, possibly by £100s, and now officially can get this money back. This step-by-step guide will show you how to reclaim your cash in minutes.

It's all about 'mortgage exit fees', which you pay when closing a mortgage account (including shifting to a new lender). Sneakily some lenders have been charging people more than their contracts stated and, thankfully, in January '07, the regulator, the FSA announced if "past customers have paid a higher fee they can expect a refund of the difference". Yet if you don't ask, you don't get.

• What is a Mortgage Exit Fee?
• Why you can get your money back?
• Step by step reclaiming guide
• Want to get more militant?
• What about my current mortgage?
• Related Articles/Discussion

They've left the gate open

Need inspiration? Read the success reports and when you get your money back, add your own.

What is a Mortgage Exit Fee?

Pay off a mortgage and you'll be charged a fee, technically known as mortgage exit administration fee (MEAF). It's supposedly to cover staff, legal and admin costs e.g. changing the registration of the property at the Land Registry. MEAF's are known by a variety of other names including 'deed release fees', 'sealing fees', 'final administration fees', 'discharge fees' and 'final redemption fees'.

A MEAF is just one type of mortgage fee, don't get it confused

A MEAF is a very specific charge, and this ruling only applies to it; arrangement fees and other fees that are paid when you take a mortgage out are not part of this.

MEAF's are commonly confused with 'early repayment fees', also known as 'redemption penalties'. They're not the same thing, and this ruling doesn't apply to redemption penalties. To clarify:

• Early Redemption Penalties can't be reclaimed. These are charged when you repay or switch mortgage during a special deal, such as a fixed or discount rate (see the Mortgage Guide / Remortgage Guide for details).

• MEAFs can be reclaimed. These are always charged when you pay off or switch a mortgage, regardless of what your deal is. This means you can sometimes pay both a 'redemption penalty' and a MEAF.

Why can you get your money back?

MEAF costs have accelerated quicker than Richard Hammond. Ten years ago they cost around £60, but since then some have climbed to nearly £300.

In January '07 the FSA told lenders they must justify these increases; and noted many lenders were charging people much more than it stated in their original contracts. Lenders' excuse was the contracts contained clauses allowing them to "vary the fee over time", but the FSA said as the term can be varied without the consumer agreeing, this falls foul of the unfair contract laws.

Lenders were given until the end of February '07 to decide on what action they'd take for past and current customers, and in most cases they simply agreed to refund customers the difference. Over 100,000 people have been through the reclaiming process via this site alone.

Why have lenders increased MEAFs so much?

I believe it's part of an increasing attempt to gemmy the competitive mortgage market. As many best buy tables work on the 'lowest interest rates', lenders have deliberately kept rates low, but increased fees to pay for it; so they look cheap, even when they're not. Yet it now turns out, with MEAFs anyway, this simply isn't allowed.

As well as MEAFs, the same's true with application fees among others, which a few years ago were typically £300, but are now often £600 - £1,000. For this reason you should be very careful when choosing a mortgage (see the mortgage or remortgage guides).

Step by Step reclaiming guide

All major lenders seem to be offering past customers a refund of some or all of the difference between what their contract stated the MEAF would be and the actual charge. This makes the reclaim process really simple, and all you need do is write a template letter or make a five minute phone call, asking for your money back.

Some lenders will also give you interest on top of your money. If you want to ask for the interest, and your lender isn't giving it automatically, though the interest isn't likely to be too huge (for example 8% interest on £100 over 5 years is £40).

Here's a template letter to help:

If in doubt just call ‘em up

Even if you don’t have a clue about what you were charged, reclaiming should be pretty easy. Just call your old lender and say “I’d like to reclaim my old mortgage exit fee please”. When it asked for details say you don’t have them, and ask it to let you know what you were charged and what your contract says. Most will do this without a problem. If it asks you why you want to reclaim, just say “because the regulator, the FSA says I was overcharged”. The table of lenders below is a guide to past MEAF rates, so you can work out roughly how much you'll get back.

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Want to get more militant?

Above I've relied on the FSA's stance but if you want to get more militant, some MoneySavers have successfully pursued the lender for more, or even all of the charge. Yet, as this option is not supported by the FSA, it's not as straightforward and your lender might not give in easily, meaning it could end up with you taking court action.

Why ask for all the money back?

It's arguable that MEAF fees aren't justified, much like with reclaiming bank charges and reclaiming credit card charges the basic concept is that under UK contract law, you can't fine someone for breaking a contract, you can only charge them an amount proportionate to the cost of the breach.

The actual administration cost to a mortgage lender of closing down a mortgage isn't thought to be much more than £50 so it's arguable that you needn't pay more than £50, regardless of what your contract says. Therefore writing to your lender, asking it to justify the charges with a full breakdown, and if it refuses asking for a full refund, can work.

If you want to adopt this more militant approach (I'm not specifically advocating it, but as it's worked for some, I feel I should present it as an option) then the following template letter should help, though if your lender refuses you may then need to threaten small claims court action. If this works for you please feedback.

What about my current mortgage?

In July '07 lenders had to explain their current charge to the FSA. Some have chosen to stick with their current fees, some have decided to reduce them and others have slashed them completely. We still await the FSA's reation to this.

From now on, you should know what exit fee you will pay when you sign up for a mortgage, or you should be given a clear idea of how the fee might be varied in the future. This should not be more than the actual cost involved in ending your mortgage.

A trick to keep the fee down

If you do want to repay your mortgage in full, there is a further trick you can play. Rather than paying it off, why not pay it down to around £50, and keep it open. You'll pay a tiny amount of interest on this amount, but it'll be much smaller than any fee. Though do check your contract, as it may specify you need to keep in more money or even that there is no exit fee if you repay in full.