What is a Product Fee on a Mortgage? Hidden Costs & Smart Savings Explained

When navigating the UK mortgage landscape, it’s essential to understand the different fees involved in the property purchase process. One of the most significant yet often overlooked charges is the mortgage product fee.

So, what is a product fee on a mortgage? It’s a charge levied by mortgage lenders for securing a special rate period on a mortgage deal. It can be a fixed amount or a percentage of your mortgage loan, and it plays a key role in shaping your monthly repayments.

But should you opt for a fee-free mortgage, or is paying the fee a financially beneficial choice? Let’s explore the details.

Article is updated as of March 19, 2025

Understanding a Mortgage Product Fee

A mortgage product fee, also known as an arrangement fee or administration charge, is a cost associated with accessing a specific mortgage product. It covers the lender’s administrative costs and can influence the mortgage interest rate you secure.

Key Facts About Product Fees:

• They range from £0 to £2,000+.

• They can be paid upfront costs or added to the mortgage balance.

• Lower mortgage rates often come with higher product fees.

This fee is part of the Tariff of Charges that lenders impose from time to time based on the mortgage market conditions.

Why Do Lenders Charge a Product Fee?

Lenders charge this fee for several reasons:

✔ Administrative Costs – Covering expenses such as valuation report processing, mortgage application handling, and structural survey options.

✔ Competitive Tool – Allows lenders to offer a favourable interest rate on fixed-rate mortgage and variable rate deals.

✔ Long-Term Savings – Borrowers opting for a high-cost mortgage product fee may benefit from lower monthly payment structures.

How Much is a Product Fee?

A mortgage product fee can vary based on:

• Type of Mortgage – Standard mortgage, buy-to-let mortgage, or discount-rate mortgage.

• Lender Policies – Some providers have fee-free mortgage deals.

• Loan Term & Value – Larger mortgages may have higher fees but lower rates.

For example, adding a £1,500 fee to a long-term mortgage at 4% mortgage interest rate could cost you over £2,000 in the repayment term.

Should You Pay the Product Fee Upfront or Add it to Your Mortgage?

Using an overpayment calculator can help you determine the long-term savings of each choice.

Are There Mortgages Without Product Fees?

Yes, fee-free mortgage options exist! But they often come with higher mortgage rates.

For those prioritising long-term impact, expert mortgage advisers recommend comparing a wide range of products.

Who Benefits Most from Paying a Product Fee?

Certain borrowers may find paying a product fee more beneficial:

• First-Time Buyers – Lower initial costs may matter more.
• Buy-to-Let Investors – May benefit from a special rate period.
• High-Value Mortgages – Lower mortgage interest rate can save thousands.

Considering financial commitments, a mortgage adviser can help assess whether a fee-paying mortgage is right for you.

Hidden Costs Associated with Product Fees

Besides the mortgage product fee, borrowers should watch out for:

• Mortgage Exit Fee – Charged at the completionThe point at which a property purchase is finalized and owne... stage.

• Application Fee – A cost for processing a mortgage application.

• Additional Mortgage Fees – Includes valuation schemes, administration fees, and legal costs.

Lenders include these in their Tariff of Mortgage Charges, so check the mortgage illustrationA document that shows the costs and terms of a mortgage, inc... document before committing.

How Mortgage Brokers Can Help?

A mortgage broker provides:

 Expert Mortgage Brokers’ Guidance – Helping navigate complex mortgage decisions.

 Comprehensive Mortgage Protection Services – Ensuring financial benefits.

 Detailed Mortgage Guides – Clarifying mortgage jargon buster terms.

They can compare remortgageRefinancing an existing mortgage with a new mortgage. deals, bad credit mortgage options, and detailed knowledge of the mortgage industry.

FAQs

Can I get a mortgage without a product fee?

Yes, but fee-free mortgage deals may have higher mortgage interest rates.

Can I negotiate a product fee?

Possibly. Experienced mortgage brokers may help negotiate a lower administration fee.

Does the product fee affect my monthly payment?

Yes, if added to your mortgage balance, it increases monthly repayments.

What’s the difference between a product fee and a mortgage account fee?

A mortgage account fee covers ongoing administration while a product fee secures a specific mortgage deal.

Can I avoid a product fee?

Yes, by opting for a fee-free mortgage, but check the long-term savings.

Conclusion

Understanding what is a product fee on a mortgage helps in making informed financial decisions. While it adds to upfront costs, it may offer long-term savings.

For tailored mortgage advice, consult a mortgage adviser to explore the best mortgage options suited to your financial goals.