Paying off the mortgage is a cause for celebration, whether you settle ahead of schedule or at the end of a 25-year term. But before you say a fond farewell to your lender and savour the joy of owning your property outright, you'll probably have to pay a Mortgage Exit Administration Fee (Meaf), to cover costs such as changing the registration of the property at the Land Registry.
Exit fees come in many different guises - administration charges, exit fees, sealing fees or deeds release fees. They may also include rebates of initial incentives received for example any cashback advanced, or the value of the free legal or valuations fees.
They are not to be confused with redemption fees, which are charged when you take out a fixed rate loan with a tie-in period, and leave before that period ends.
As borrowers become more savvy to the savings they can make by shopping around and moving their mortgage for a better deal, many companies have raised their exit charges - in some cases, by more than 100 per cent since the beginning of the loan. This has happened over the last four years.
According to data from Moneyfacts, for example, borrowers at Alliance & Leicester have seen exit fees almost double to ¯¿½295 over the last 10 years, despite much lower figures being quoted in their original mortgage documentation.
The Financial Services Authority began looking into the issue of 'unfair' exit increases in 2005. In January of this year it challenged providers to justify exit fee rises or lower them to a more acceptable level.
As yet, no lender has stood up to the FSA, with most already indicating that they will reduce fees. A&L, whose ¯¿½295 charge is the highest on the market, has said it will retrospectively fix its fee for customers who took out a loan before 2004, when it raised its fee. Abbey and Nationwide have also agreed to charge existing borrowers the lower amount, but Halifax has refused to issue blanket compensation and says it will look at each case individually.
Ray Boulger at mortgage broker John Charcol said: "The FSA report addressed the long standing problems surrounding these fees and made it clear that the current lack of transparency for borrowers would no longer be acceptable.
"It was stated that if lenders have increased their exit fee because of a claimed increase in their costs between the time the mortgage was arranged and redeemed, then the contract must contain a clear and fair term that allows the lender to do this.
"I am not aware of any lender that meets this requirement and thus most increases in exit fees appear to have been illegal."
Many borrowers who have redeemed a mortgage in the last four years will have a very strong case for seeking compensation from their lender.
Around 10 million mortgages have been redeemed in the last four years and it is estimated that total compensation payable will be at least ¯¿½50m, and possibly as much as ¯¿½100m. So if you think you have been overcharged, how do you go about claiming back what you are owed?
How to make a claim
If you have the original paperwork for your loan, it should show the exit fee you agreed to pay and the exit statement showing how much you actually paid.
Write to your mortgage provider and ask them to refund you the difference. Enclose copies of the mortgage documents.
I've thrown away my paperwork
Write to your lender stating your address and if possible the account number on our mortgage.
Explain that you think you have been charged to high and exit fee and ask for the difference to be refunded.
You should still be able to make a claim without the account number. In this instance, tell the lender your address and postcode.
If your lender refuses a refund, contact the Financial Ombudsman (www.financial-ombudsman.org.uk.
