- Mortgage rates and calculators

Mortgage borrowers who have been hit with exorbitant fees on mortgage products should now be able to claim reimbursement. This is because the City watchdog, The Financial Services Authority (FSA), has clamped down on exit fees - the charge levied when a mortgage is redeemed.

Exit fees have surged by about 350% over the past decade, from about £80 to over £200. Some lenders have charged even more to close a mortgage account. Alliance & Leicester being one of the highest fee at £295.

Many consumers find they are paying far more than when they first signed up for their deal, and the FSA has ruled that this is unacceptable. Too often with mortgage contracts, the exit fee has been largely undefined and the costs have been liable to change over the lifetime of the mortgage at the discretion of the lender.

David Hollingworth of mortgage broker London & Country Mortgages said many of those who had redeemed mortgages over the last three years and who had had a mortgage several years prior to that, were likely to be able to make a claim.

"What people have to be aware of though is that if you have had four mortgage deals with the same lender over 10 years, the exit charge applied to the last deal you signed up to is the one that will apply not the one attached to your very first loan."

How to Reclaim Money

Anyone who has been charged an exit fee that went up during their mortgage contract should be eligible for a refund. The refund will usually not be for the full amount, rather it will acount for the difference between the fee at the start and end of the deal. Borrowers who have been unfairly charged can expect a refund of between £100 and £200.

1)To claim your money back, check the fee specified in your original mortgage contract and, if you were charged more when you closed your mortgagecontact the lender and ask for a refund.

2) Think big - ask for a complete refund of your exit fee, in some cases lenders have provided full reimbursements. Also ask for any interest on top - if you don't ask you don't get. See what the lender is prepared to offer.

3) You can actually make a claim over the phone. Be clear in your mind what the claim is for. Exit fees are not the same as redemption fees. Exit fees effectively charge for . the administration involved when you close a mortgage - cancelling direct debit payments or transferring the paperwork to your new lender. Redemption penalties are a lot higher and they are charged if you leave a mortgage typically just prior to an introductory offer expiring - the charges are normally a percentage of the mortgage (i.e 1-5pc) and can run into thousands of pounds.

4) If the phone call is unsuccessful or you have spent the best part of an hour on hold listening to Sheena Easton's Greatest Hits, then the next course of action is to write a letter.

5) In the letter make it clear that 'it is unlawful under common law, and under statute and consumer regulations, to impose charges in standard, pre-written contracts without making it clear what the charges are for. Furthermore, the charges must be fair, not penalties.' The onus is then on the lender to prove that these charges are a fair reflection of your administrative costs, Ask for full repayment of the charges and write down the amount you think you are owed.

6) If the lender is still not playing ball the next course of action may be to contact the Financial Ombudsman Service and ask them to arbitrate. This can be done online at www.fos.org.uk/consumer/complaints.thm.

7) A final option is the small claims court. You can log on to HM Courts Service website www.moneyclaim.gov. It's free to use this service but you have to register first. It is highly unlikely that it should reach this stage but it might provide the much needed kick up the backside for the lender to decide to cough up. David Hollingworth and London & Country Mortgages insists that in most cases the Ombudsman or small claims court will not be required. "The anecdotal evidence we have had from clients is that if a claim is justifed, then lenders pay up with little fuss.

8) Claiming back exit fees may have whetted the appetite to make claims for other charges related to your mortgage - but tread carefully. There have been cases of borrowers reclaiming redemption penalties but they are very rare cases. "In very exceptional cases claims have been made against redemption penalties," Hollingworth explains, "but redemption penalties areusually spelled out clearly in the mortgage contract that the borrower has signed up for. They are transparent and quantifiable unlike many exit fees"

The danger for borrowers trying to claim back redemption penalties is that they may have to resort to the courts (not merely the small claims court) and thereby incur hefty legal costs if they lose.

A Fairer Deal in Future

Borrowers should no longer be hit by hugely inflated exit fees in future. The FSA has given lenders four options: they can either charge no fee at all; reduce their current fee; levy the charge that was applicable at the time the loan was taken out; or, if they increase it during the term, they must be able to justify it to the regulator.

Most lenders are opting choosing to fix the fee at the outset so borrowers know exactly what it will cost them if they redeem their loan. A few, including Portman, C&G and Hinckley & Rugby building societies, have cut their exit fees altogether.

Whether exit fees apply is one more calculation in deciding which mortgage deal is the best for you.

- AOL Money Mortgages & Homes
- AOL Money Consumer Corner