ASK494: What do I do with these mortgage fees? PLUS: Use a bridge or buy cash?

0:01Hi, I'm Rob. And I'm Rob. And this is Ask Rob and Rob. Hey everybody, welcome to Ask Rob and Rob, the show where we take your wonderful questions and we give you some answers in return. We do this here on the podcast each and every week, every Tuesday, but we also answer your questions in the Sunday Times. Yes, you've guessed it, on Sunday. Now, if you'd like to get your question here or in the Sunday Times, we have a very simple process for you to follow. Rob, would you like to share? Of course, all you've got to do is go to propertyhub.net slash ask. That is where you can leave us a written question for the Sunday Times.

0:35Or if you want to be our favourite, leave us a voicemail so we can answer your question right here on the show. That's what we're about to do for Danny. Hi, Rob and Rob. It's Danny from Northern Ireland here. My wife and I have embarked on our property journey at the start of 2025 using capital release from our residential home to fund purchases of BTL properties through a limited company. With no real experience before starting out, the information from your podcast, YouTube and website content have been invaluable. So thank you very much. My question today is on mortgage fees as these don't seem to be referenced offence by content breaking down the leveraged finance approach.

1:06Yeah, the fees are often pretty substantial, anywhere from 4 to 6k for every mortgage and future remortgage. Should we be paying these upfront or adding them to the value of the loan? If the latter, surely this increases the overall mortgage loan substantially over the long term. Any advice would be much appreciated. Thanks again. Danny, thank you for the question. And I'm glad you found everything that we do here useful and congratulations on all the progress you've made so far. So this is a question that comes up from time to time and the answer is pretty simple. There are actually two correct answers.

1:35Both options are right or both options are wrong depending on what it is that you want to achieve. So mathematically the best thing to do is pay the mortgage fee up front because quite simply if you're taking a£5 ,000 mortgage fee let's say and you're adding that to the loan and the interest that you're paying on the whole balance is 5 % then that's costing you£250 a year in interest on that fee. So mathematically really simple you're going to end up paying less mortgage interest over time if you just pay that fee up front. However many investors choose to add the fee to the loan even knowing it's going to end up costing them more because their priority is protecting their cash today.

2:15So if you think about it when you're in growth mode what you want to do is get onto the next property as quickly as you can. So there's various ways of doing that. You're hopefully buying in a market where prices are going up so you can potentially refinance. You might be adding value to the property. You might be buying at a discount. And you're, of course, going to be saving. All these things put together are going to be how you're going to get to your next property as fast as you can. And then with the rent coming in from those two properties, the snowball bills, you move on to the next one, next one, next one.

2:41If you're paying out a£5 ,000 fee, say, then that's£5 ,000 more that you're shelling out that you then need to get back in through some of those other sources in order to buy your next property. So it's very common to take the hit on the interest, add the fee to the loan, and therefore protect their cash to get onto their next property faster. Of course, over the last few years, fees have got bigger. So this is more of an issue than it once was. When your fee was£1 ,000, it didn't really matter so much either way. But now, if you are looking at those chunkier fees, although fees are starting to come down again, it does mean you're going to be paying more interest on that fee over the term or shelling out more cash today.

3:19So it's just a more significant decision. But like I say, Danny, both answers can be right. Both answers can be wrong. It depends on your priority right now. So I hope that helps. Right. Next up, we have a question in from Will. Hello, Rob and Rob. My name's Will. I'm a young wannabe investor from around Sheffield. And one of the reasons why I'm such a wannabe investor is because of your podcast and some of the other great podcasts out there. So thank you for what you're doing. You're helping so many people. and I've now got an urge to buy loads of houses. So a little bit about my situation. I've got an unencumbered property that I inherited and I've also got a buy-to-let that I bought last year.

3:57That's my first investment that I bought. I'm looking to grow the portfolio quite aggressively using money from the unencumbered property and using bridging loans. I'm looking to buy BRR projects, so things that don't need too much doing to them. I'm looking for things that I can buy with cash or bridge at the minute. auction properties like my question to you is for the first one should i go with a bridge and pay them expensive fees and all the hidden expensive stuff that comes with it or should i just refinance pull a hundred thousand pounds out of the unencumbered property and just use that and my remaining cash to do it up what would you do in my shoes cheers bye bye well thank you for your question you're in a really good position so understandably you want to get this right and let's try and point you in the right direction.

4:45If it was me and you were insistent on going down this path and going on this strategy, then I would take out equity from your property and use that. Why? Well, the debt, the amount you'll be paying for that debt each month will be a lot less, a lot less if you remortgage and use equity compared to a bridging loan. And if the project doesn't go as well as you first hope, then you're not in such a tricky position. So what I mean by that is if you take a bridging loan out, you buy, you refurb, and you go to refinance, but the bank doesn't agree with you and doesn't refinance at the level you want, then you may be in a position where not all the bridging loan can be paid off for the equity you look to release.

5:31So based on that, I would absolutely look at using equity first. Some people may feel uncomfortable with that advice because they don't like releasing equity to use it to go and buy other things, but every person's different, but you just run the numbers. What I would say is, as this will be your first project, buy a property that you would be happy to own, even if you don't extract the numbers out that you want in the end. Because the real learning happens when you actually do the projects, not when you listen to people like me and Rob give advice on them. So you're going to learn loads, and that's a great thing.

6:03That shouldn't put you off, and you will make mistakes. Again, that's a great thing because mistakes then become lessons. But because of that, do it in a way where the downside is protected. Use the equity that you've got. Make sure that the rent, and you won't be able to predict the rent, is enough to cover those costs if you don't extract all the equity out that you want at the end. And you'll still have a really good buy to let. And you'll still not be in a position that's putting you under financial stress. And you would have learned a lot. Now, if that's your worst case scenario, I think that's a great worst case.

6:36So Will, we wish you the very best of luck and I hope your project goes really well. So there you go. Two more questions answered. And like we said at the beginning, we'd love to have yours too. So do get over to propertyhub.net slash ask if you've got a question to send our way. But that's it for today. We will see you back here on Thursday for the Property Podcast. Until then, have a great week. Bye-bye. Bye-bye.