When you take out a mortgage, most lenders offer two choices for the product fee. You can either pay it upfront or add it to the loan. Many people choose to add it because it saves cash at the time of the application. It feels easier and avoids a large payment when the mortgage starts. However, whether you add the fee to the loan or pay it upfront, the tax treatment is exactly the same. It will still need releasing to the profit and loss account over the mortgage product term.

What the Fee Is

The mortgage product fee, sometimes called an arrangement fee, is the price you pay to secure a particular rate. Fixed rates with lower interest often come with higher fees. Some borrowers choose to attach the fee to the mortgage balance instead of paying it at the start, which means it becomes part of the loan and is repaid over time.

What Happens When You Add the Fee to the Mortgage

If the fee is added to the loan, interest will be charged on it in the same way as interest on the main mortgage. A £1,000 fee added to a 25-year mortgage increases the total repayable because interest builds up over the full term. Many borrowers do not notice this because the extra cost is spread over many years.

Although it increases the long-term cost, adding the fee can be useful if you want to preserve cash, avoid a large upfront payment or keep funds available for repairs, legal fees or other property expenses.

How HMRC Treats It for Tax

For landlords, the main question is how the cost can be claimed. HMRC does not allow the whole fee to be claimed in one go when it relates to a multi-year mortgage product. Instead, the fee must be released evenly across the fixed period of the mortgage product.

If the fee is £1,000 and the fixed product lasts five years, you can only claim £200 per year. This rule applies whether the fee is added to the loan or paid upfront. The fact that it may be repaid monthly through the mortgage does not change the tax treatment. The same rule applies to individuals and limited companies.

Does Adding the Fee Ever Make Sense?

Adding the fee to the loan may help if you prefer keeping cash available or if the fee is large. It can also help with short-term cash flow. However, paying it upfront avoids paying interest on the fee for many years. The best option depends on cash reserves, future expenses and how long you expect to keep the mortgage product.

What to Consider Before Deciding

Before choosing whether to add the fee, think about:
• The extra interest paid over the mortgage term
• Your cash reserves and upcoming property costs
• The length of the fixed period
• The tax relief you will receive each year
• How long you plan to keep the mortgage

For many people, paying upfront costs less overall. For others, preserving cash is more important than the interest saved.

Final Thoughts

The product fee can easily be overlooked when comparing mortgage products, but it affects both the overall cost of borrowing and the tax treatment. Whether paid upfront or added to the loan, the tax rule stays the same: it is released over the mortgage product term. Understanding this helps landlords and homeowners plan more effectively.

If you want a comparison based on your own mortgage figures, we can prepare a calculation showing both options side by side.