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In the last 3 to 5 years we have seen rises of up to 450% in the exit fees charged by lenders when borrowers redeem their mortgage. But at last the Financial Services Authority (FSA) ha seen the light and is going to crackdown on these increases.

Lenders have been telling new borrowers about the exit fees currently charged, but the lender has retained the right to increase those charges at any time and without advising borrowers. This amounts to a free hand to increase these charges and many lenders have taken the opportunity gladly.

Take the Woolwich for example; they’ve increased their exit fee from what was 95 to 275. The Cheltenham & Gloucester has increased theirs from 50 to 225. The lenders have clearly been trying to penalise those of us who regularly switch their mortgage to get the best interest rates the so called rate tarts and at the same time line their coffers.

However, the FSA is now in talks with the mortgage lenders to bring them to heal. The FSA wants fees to be fully disclosed at the outset and for the disclosed exit fee to be fixed for the duration of the mortgage. The FSA hopes to have agreed a binding undertaking from the lenders by June this year.

On a wider front, borrowers should always remember to take into account all the charges and money saving offers when working out which mortgage is cheapest for them.

To illustrate this point, let’s say you wanted a 2-year fixed rate mortgage and were attracted by the offers from the Northern Rock and the Halifax.

Northern Rock currently charges an interest rate of 4.19% plus a 1.5% arrangement fee and an exit fee of 250. Halifax’s interest rate is 4.39% with an arrangement fee of 499 and exit fee of 175. Within Halifax’s package there’s also a free valuation and free conveyancing that typically could save around 750. So which mortgage deal is the cheapest?

Taking a 25 year repayment mortgage for 100,000 and costing it over the first two years with redemption at the end of the second year, The Northern Rock comes out at 14,671. The Halifax comes out at 807 cheaper at 13,864. And this saving doesn’t take into account the extra 750 valuation and legal savings offered by the Halifax. Therefore, assessed on this basis, the 4.39% headline rate offered by the Halifax is in fact the cheaper deal.

Another issue that will affect the true cost of your mortgage is whether the interest is charged on a daily, monthly or annual basis. On an otherwise like for like basis, annually calculated interest will always work out more expensive because for 11 months of the year, you are charged interest on money you have already repaid.

The best advice is to read all the small print! And remember that the lenders use all sorts of words to describe charges – application, arrangement, reservation, booking, completion and early redemption are all words to described charges or fees. Keep your eyes skinned!

When you are searching for or reading through any mortgage, there are some terms that are vitally important to how you perceive the paperwork. If you aren’t familiar with all of the terms, then you might misunderstand what the document is saying and agree to something that you might not mean to. Here are some of the basic terms that you should understand before you sign anything:

1. Creditor this is the party who is selling, or who holds the current deed to the property that you are buying. They legally own the property and have the legal right to sell it, or secure it by a mortgage. This is usually the mortgage company, bank, or other lending institution. The creditor is also listed as the mortgagee or lender in some cases.

2. Debtor this is the party who is buying the property. If you are looking to purchase the property, then the debtor is you. This party must ensure that they are able to repay the mortgage to the creditor before the creditor will sign the mortgage.

3. Conveyance this is the term for the legal exchange of the property from the creditor to the debtor.

4. Hypothecation this is just a fancy term for the debt that is incurred by the mortgage. This is what the debtor has when they sign the mortgage and turn over the money to the seller of the property.

5. Redemption this is when the mortgage, or debt, is paid in full.

6. Mortgage by demise this is when the creditor assumes ownership of the property until the debt is paid in full. This form of mortgage was widely used in the past, but is seldom used today, and is even outlawed in some countries.

7. Mortgage by legal charge this is the basic type of mortgage that is available to day. In this case, the debtor (or buyer) is legally the owner of the property, but the creditor retains enough rights over the property to ensure that they will be paid.

There are many more mortgage terms that you should be familiar with when searching for a mortgage. You should make sure that you are aware of other terms that you might need to know before you head into a mortgage broker’s office to sign any paperwork. Hopefully these terms help to give you a little more of an idea of what you are signing when you do make it to that part in the process.