What a Facility Costs Beyond the Rate

The components that make up the cost of borrowing, which ones are negotiable, and where comparisons usually go wrong.

Borrowers compare rates because rates are advertised. The total cost of a facility is assembled from several components, some one-off and some recurring, and two facilities with identical rates can differ meaningfully once all of them are counted.

What this number does and does not include

This covers the costs of obtaining and servicing a facility secured on property. It excludes the amount borrowed itself and the costs of the underlying property transaction, which are separate.

The cost of the money

The largest component, accumulating across the term and determined by both the rate and the duration.

• Pushes it up: Longer terms, higher rates and larger amounts.
• Brings it down: Shorter terms and borrowing only what the purpose requires.
• How to control it: Negotiate term as well as rate. Term is frequently more flexible and moves the total more than small rate differences.

Arrangement and processing costs

One-off charges for assessing, arranging and documenting the facility.

• Pushes it up: Complex applications and products with higher administration.
• Brings it down: Complete documentation submitted correctly, which reduces processing effort.
• How to control it: Ask for these to be itemised and compare them across offers, since they are one-off and directly comparable.

Valuation and assessment

The cost of valuing the property that secures the facility.

• Pushes it up: Unusual properties requiring more assessment, and repeat valuations if an application stalls.
• Brings it down: Applying once with complete documentation rather than repeatedly.
• How to control it: Ask whether the valuation is transferable if you change provider, since repeating it is avoidable cost.

Required insurance

Insurance the financier requires as a condition of the facility.

• Pushes it up: Higher amounts, longer terms and provider-arranged policies.
• Brings it down: Arranging acceptable cover independently where the financier permits it.
• How to control it: Ask whether you may arrange the required cover yourself and compare the cost, since this recurs for the life of the facility.

Registration and security costs

Costs of registering the security over the property and, later, releasing it.

• Pushes it up: Higher amounts where costs are proportional.
• Brings it down: Nothing within your control; these follow the arrangement.
• How to control it: Ask about the release cost at the start, since it is a cost you will certainly incur eventually.

Costs that never appear on the first page

• Late payment charges, which compound a temporary difficulty into a lasting one.
• Costs of varying the facility later, such as changing the term or the security.
• Repeat valuation if an application lapses and must be resubmitted.
• The opportunity cost of capital tied up as a deposit or reserve required by the arrangement.

Keeping the budget honest

Compare facilities on the total amount repayable plus all one-off costs, calculated over the same term and amount. Any comparison based on the rate alone is comparing one component of several.

• Before applying, comparing indications on total cost.
• Before signing, confirming every cost is disclosed and understood.
• Annually, reviewing whether the facility remains competitive.
• Before settlement or refinancing, confirming the costs of doing so.

If you are weighing a financing decision, Domira can review the offers, model the total cost and stress test the obligation with you before you sign anything.