A mortgage product fee is a charge a lender adds to a specific mortgage deal, usually somewhere between £0 and £1,999. You pay it in return for a lower interest rate. Whether it is worth paying depends on your loan size: on larger mortgages, the rate savings usually outweigh the fee; on smaller ones, they often do not.
Key Takeaways
- A mortgage product fee and a mortgage arrangement fee are the same thing. Lenders use both names for the charge attached to a particular deal.
- Most product fees sit between £995 and £1,499, though some deals are fee-free and a few run to £1,999 or more.
- You can pay the fee upfront or add it to the mortgage. Adding it means you pay interest on it for the whole term, which can quietly double its real cost.
- Fee-paying deals tend to win on bigger loans, where the lower rate saves more than the fee costs. On smaller loans, a fee-free deal often works out cheaper.
- The product fee is only one charge. Booking fees, valuation fees, legal fees and a possible higher lending charge all sit alongside it.
- A whole-of-market mortgage broker can run the maths across both fee and fee-free deals and tell you which is genuinely cheaper over your fixed period.
What is a mortgage product fee?
A mortgage product fee is a one-off charge that a mortgage lender applies to set up a particular mortgage deal, whether that is a home loan to buy a property or a remortgage. You will also see it referred to as an arrangement fee or a completion fee. They all mean the same thing: a fee that buys you access to a specific rate.
A lender will often offer the same mortgage in two versions:
- With a product fee: a lower interest rate, but you pay the fee on top.
- Without a product fee: no fee to pay, but a higher interest rate.
So a mortgage deal with an arrangement fee is not automatically worse, and a fee-free deal is not automatically cheaper. It depends on whether the lower rate saves you more than the fee costs, which usually comes down to your loan size.
You will come across a product fee when you take out a mortgage to buy a home, and again each time you remortgage. Not every deal has one. Plenty of lenders offer fee-free options, and those can be the better choice, especially on smaller loans.
If your deal has a product fee, you get to decide how to pay it. You can pay it upfront when the mortgage completes, or add it to the loan and pay it off over the term. That decision matters more than most people realise, and there is a full section on it below. One thing worth knowing now is that the fee is charged only when the mortgage completes, so if your mortgage application falls through before then, you will usually get it back.
Why do lenders charge a product fee?
There are two reasons, really. The fee covers part of the lender’s setup costs and lets them advertise a sharp headline rate in the best-buy tables while still maintaining their margin. A deal at 4.19% with a £999 fee can earn a lender more than a fee-free deal at 4.45%, depending on the loan size. The fee is quietly doing a lot of the work.
How much does a mortgage product fee cost?
Most product fees fall between £995 and £1,499. The average fixed-rate product fee is around £1,100, and £999 is close to a market standard.
Some deals run to £2,000 or more. And a few specialist lenders charge a percentage of the loan rather than a fixed fee, which matters on a large mortgage: a 1% fee on a £400,000 loan amount is £4,000.
The fee is fixed for the specific deal you choose, so you will know it from the start when you apply. It is not a catch, just a different way of pricing the same loan, and as the example below shows, a fee deal can genuinely turn out cheaper once you do the sums.
Here is roughly what you will see across the bigger lenders. Fees move with each deal, so treat these as typical ranges rather than a live price list.
| Lender | Typical product fee range | Fee-free deals available? |
|---|---|---|
| Halifax | £999 to £1,499 | Yes, on selected ranges |
| Nationwide | £999 (often £1,499 on lower rates) | Yes |
| Barclays | £899 to £999 | Yes |
| NatWest | £995 to £1,495 | Yes |
| Santander | £999 to £1,749 | Yes |
| HSBC | £999 to £1,499 | Yes |
| Specialist lenders | 1% to 2% of the loan, or up to £1,999+ | Rarely |
Notice that every mainstream mortgage provider runs both fee and fee-free options. That is the whole point of comparing properly. The cheapest deal on a best-buy table is almost always a fee-paying one, but the cheapest rate is not the same as the cheapest deal.
Comparing mortgage deals with and without a product fee
Mortgage arrangement fees change the maths on every deal, so this is where the real decision sits. A fee-free deal looks simpler, and there is genuine value in that. But the fee-paying version usually comes with a lower rate, and on a larger loan, that lower rate can save you far more than the fee costs.
To compare mortgage deals properly, work out the overall cost over the fixed period, fee included, for each one. Not the monthly payment on its own. Not the rate on its own. The total.
Real life example: a £200,000 mortgage
Say you are buying with a 10% deposit and need a £200,000 repayment mortgage over 25 years on a two-year fixed deal. That puts you at 90% loan-to-value. To keep this real, here are two genuine Nationwide deals from the same range, one with a fee and one without.
- Deal A: 4.33% with a £999 product fee. The monthly repayment is around £1,092. Over the two years, that comes to £26,219, and with the fee added, you pay £27,218 in total.
- Deal B: 4.79% with no fee. The monthly repayment is around £1,145. Over the two years, that comes to £27,476, with nothing else to add.
Deal A works out at about £258 cheaper over the two years, so the fee is worth paying. The lower rate saves you roughly £52 a month, which more than covers the £999 over the fixed period.
It is worth saying that this will not always be the answer. Shrink the gap between the two rates, or push the fee up to £1,499, and the fee-free deal can easily come out ahead. On a much larger mortgage loan, the lower rate works harder still. On a smaller loan, the fee-free deal often wins. That is the whole reason to do the sum rather than guess.
One point worth remembering: you face this same decision every time you remortgage, which for most people is every few years. A product fee is not a one-off, so it pays to run the comparison each time rather than assume.
Why best-buy tables can mislead you
Comparison sites and best-buy tables rank by interest rate or by initial monthly payment. Neither tells you the true cost. A deal can top the table on rate and still be more expensive once you add a £1,999 fee on a modest loan. Always look past the headline rate to the total cost over the fixed period.
Should you pay the product fee upfront or add it to the mortgage?
If your deal has a fee, you decide how to pay it: upfront when the mortgage completes, or added to the balance and spread over the term. Most people add it without much thought, because it is the easier option in the moment. It is also usually the more expensive one.
Paying the fee upfront
Paying the fee upfront is the cleaner option. You hand over the £999, and that is the end of it. It never sits on your mortgage balance, so you never pay interest on it. If you can cover it without stretching yourself, this is usually the better move.
Adding the fee to your mortgage
If you add the arrangement fee to the loan, you will end up spreading the cost over the full term, which eases the cash you need on day one. The problem is the interest. Once the fee is added to your balance, it earns interest for the lender each year until the mortgage is paid off, so it quietly costs you far more than its sticker price.
On a 25-year mortgage at around 4.5%, a £999 fee added to the balance ends up costing close to £1,800 by the time the mortgage is gone. You nearly double it. The fee did not change. The interest charged on it did.
Adding the fee also nudges up your monthly mortgage payment because every payment is then calculated on the slightly larger balance. The increase is small, often a few pounds, but it runs for the whole mortgage term.
When you compare two deals, look at the APRC rather than the headline rate. It combines the rate and the fees into a single figure, so it reflects what the deal actually costs. A mortgage calculator makes the difference in monthly mortgage repayments clear in seconds: enter the loan with the fee added, then without, and the gap is right there.
There is a halfway option that people often miss. Add the fee to the mortgage so completion is comfortable, then overpay by the same amount in the first few months. Most lenders let you overpay up to 10% of the balance a year with no penalty, so this clears the fee off your balance early and stops the interest from building. It works well if money is tight on completion day, but you expect to have it soon after.
So which should you do?
Pay upfront if you can do it without draining your reserves. Add it to the mortgage only if paying it upfront would leave you short on moving costs or your emergency fund. And if you do add it to the mortgage, try to pay it back quickly via an overpayment.
Is a booking fee the same as a product fee?
No, though they get confused. A mortgage booking fee, sometimes called a reservation fee, is a smaller charge of usually £100 to £300, paid upfront when you apply and often non-refundable. A product fee is larger, paid on completion, and usually refundable if the deal falls through. Some lenders charge both, some fold everything into one product fee, so when you compare deals, check which fees apply rather than assuming.
Is a mortgage broker fee the same as a product fee?
No, and it is worth being clear on the difference. A product fee is charged by the lender for the mortgage deal. A broker fee, if there is one, is charged by the broker for their advice. Two separate things.
Some brokers charge you a fee, some are fee-free and take a commission from the lender instead. YesCanDo Money is a fee-free broker, so there are No Broker Fees to add to your sums. For the full picture on this, see our guide on how mortgage brokers get paid.
Other mortgage fees to watch for
The product fee gets the attention, but it is not the only charge. Most mortgages come with other fees around the edges: a valuation fee, a booking or telegraphic transfer fee to move the mortgage funds, legal costs, an exit fee at the end, and an early repayment charge if you leave a deal early.
Most of them are small. A mortgage exit fee is typically £50 to £150, and the legal costs on a purchase include a Land Registry fee that depends on the purchase price. The amounts vary from lender to lender. The one to watch is the early repayment charge, which is easily the most expensive of the bunch.
Before you commit, ask the lender for the full fee schedule in writing, so nothing appears as a surprise later.
For a full breakdown of every charge, see our wider guide to mortgage fees and costs, or our mortgage lender fees guide for the charges that come specifically from the lender.
How YesCanDo Money can help
The product fee question sounds simple, but it is not. The right answer depends on your loan size, the rate gap between the fee and fee-free versions, how long your fixed period runs and whether you can cover the fee upfront. Get it wrong, and you can pay hundreds more than you needed to.
As a whole-of-market broker, we compare deals across 90+ lenders and run the total cost on the fee and fee-free versions side by side, so the recommendation is based on the real number over your fixed period, not the headline rate. Our advice is fee-free, so there is nothing extra to weigh into your sums.
Speak to one of our experienced mortgage advisers for free, no-obligation advice. Call 033 0088 4407, send a message on WhatsApp, or request a callback, and we will run the figures with you.
Frequently asked questions
What is the arrangement fee on a mortgage?
An arrangement fee is the same as a product fee. It is a charge a lender attaches to a specific mortgage deal, usually £0 to £1,999, in return for a lower interest rate. Lenders use the terms arrangement fee and product fee interchangeably.
Why do banks charge arrangement fees?
An arrangement fee covers part of the lender’s costs of setting up the loan and allows them to advertise a lower headline rate. The fee and the rate work together: a fee-based deal usually has a lower rate than the same lender’s fee-free deal.
Should I add a product fee to a remortgage?
You can, and it eases the cash you need upfront. But adding the fee means paying interest on it until the mortgage is repaid. If you can pay it upfront as part of a remortgage, that is usually cheaper. If not, consider adding it then overpaying it back within the first year.
Is it better to pay a product fee upfront?
Usually, yes, if you can afford it without stretching your finances. Paying the arrangement fee upfront means the fee never sits on your mortgage balance, so you never pay interest on it. Adding a £999 fee to a 25-year mortgage can cost close to £1,800 once interest is included.
Is it worth paying a mortgage product fee?
It depends on your loan size and the rate gap. Work out the total cost, fee included, of the fee-paying deal and the fee-free deal over the fixed period. Whichever total is lower is the better deal. A broker can run this comparison for you.
How do I avoid mortgage product fees?
Choose a fee-free mortgage deal. Most major lenders offer them. Fee-free deals usually carry a slightly higher interest rate, so they tend to suit smaller mortgages where the rate difference costs less than a fee would. A broker can find the fee-free deals worth considering.
Can I get my mortgage product fee back?
A product fee is usually refundable if the mortgage does not complete, since it is normally only charged on completion, after your mortgage offer is issued. Once the mortgage is completed, it is non-refundable. Booking fees are different: they are often paid upfront and are usually non-refundable even if the deal falls through.
Do I pay a product fee again every time I remortgage?
Potentially yes. Each new deal can carry its own product fee, whether you remortgage to a new lender or take a product transfer with your current one. Some deals are fee-free, so over the years, it pays to compare the fee and fee-free options every time rather than assuming.
Is there a product fee when I port my mortgage?
Porting moves your existing deal to a new property, so your original product fee is not charged again. But if you borrow more for the new home, that extra borrowing is a new deal and can carry its own product fee. Check which fees apply to the additional borrowing before you move.
