Commercial mortgage fees explained
The interest rate gets all the attention, but the fees on a commercial mortgage are where a surprising amount of the real cost sits, and where deals that look s
Key takeaways
- A commercial mortgage carries several fees beyond the interest rate: arrangement, valuation, legal, broker and sometimes exit and commitment fees, and they add up to a real sum on completion.
- The arrangement fee is usually the largest, often around 1 to 2 percent of the loan, and is frequently added to the loan rather than paid in cash.
- You pay for both the lender's legal work and your own, and the valuation, so legal and survey costs come from your pocket whether or not the loan completes.
- Compare deals on the total cost over the life of the loan, not the headline rate, because a keen rate with heavy fees can cost more than a slightly higher rate with light ones.
The interest rate gets all the attention, but the fees on a commercial mortgage are where a surprising amount of the real cost sits, and where deals that look similar on rate can diverge sharply on total cost. A commercial mortgage is a more involved transaction than a residential one, with a valuation, two sets of solicitors and an arrangement fee that can run into thousands, and a borrower who budgets only for the deposit and the rate is in for an unwelcome arithmetic lesson at completion.
This guide sets out every fee you are likely to meet on a commercial mortgage, what each one is for, roughly what it costs, which are paid in cash and which are added to the loan, and how to keep the total down without false economy. We arrange these facilities as a broker and introducer; we are not a lender, all fee figures here are indicative and vary by lender and deal, and nothing in this guide is financial advice or an offer of finance.
What fees do you pay on a commercial mortgage?
A commercial mortgage typically carries five or six distinct fees on top of the interest. The arrangement fee is the lender's charge for setting up the loan. The valuation fee pays the surveyor who values the asset for the lender. Legal fees cover both the lender's solicitor and your own. A broker fee, where applicable, pays for the arranging work. And some deals carry a commitment fee on offer and an exit fee on redemption. Knowing them all up front turns a nasty surprise into a line in the budget.
| Fee | What it pays for | Rough scale | Cash or added to loan? |
|---|---|---|---|
| Arrangement fee | Lender setting up the loan | Often 1 to 2 percent of loan | Usually added to the loan |
| Valuation fee | RICS valuation for the lender | Hundreds to several thousand | Cash, paid up front |
| Legal fees | Lender's and your own solicitors | Low thousands, more if complex | Cash |
| Broker fee | Arranging and packaging the deal | Varies; sometimes lender-paid | Cash or from loan |
| Commitment / exit fee | Holding the offer / redeeming the loan | Deal-specific | Per the offer terms |
The mix varies by lender and by deal. Some lenders front-load the arrangement fee and keep other charges light; others spread the cost differently or add an exit fee. The only way to compare fairly is to total the fees alongside the interest over the life you expect to hold the loan, which the later section explains. Treat any single fee in isolation with suspicion, because lenders trade one off against another.
What is the arrangement fee and how much is it?
The arrangement fee, sometimes called the facility or completion fee, is the lender's charge for assessing, approving and setting up the loan. It is usually the largest single fee, commonly around 1 to 2 percent of the loan amount, so on a £500,000 loan it might be £5,000 to £10,000. On more complex or higher-risk lending it can be higher, and on keenly competed prime deals it can be lower; like the rate, it reflects the lender's view of the deal.
Because the arrangement fee is large and usually capitalised, it deserves as much attention as the rate. A lender offering a slightly keener rate but a heavier arrangement fee may be the dearer choice overall, especially if you expect to repay or refinance before the rate saving outweighs the fee. We factor the arrangement fee into the comparison when we model deals across our panel for a commercial mortgage at /services/commercial-mortgages/, because the rate and the fee together are the cost of the money.
What do the valuation and legal fees cost?
The valuation fee pays for the RICS valuation the lender requires before it will lend, because the loan is sized against that figure. It scales with the value and complexity of the asset, from a few hundred pounds on a small simple unit to several thousand on a larger or more unusual one, and it is paid up front, in cash, often before the loan is even formally offered. Critically, it is non-refundable if the deal then falls through, so it is money at risk from early in the process.
Legal fees come in two parts, and you pay both. Your own solicitor handles the purchase or refinance conveyancing and the borrower's side of the loan; the lender's solicitor handles the lender's security, and the lender almost always passes that cost to you as well. So a commercial mortgage carries two legal bills, both yours, and they rise with the complexity of the title, the lease structure and any planning or environmental issues. A clean, simple asset keeps both bills down; a complicated one inflates them.
The valuation and legal fees come out of your pocket whether or not the loan completes. They are the cost of finding out the deal works, not a charge for the loan itself.
Because these are sunk costs paid early, it pays to be confident the deal is sound before incurring them. Part of a broker's value is filtering out the deals that will not value or will not pass underwriting before a client spends on a valuation and legals, so that the money is committed to deals with a real chance of completing rather than to finding out the hard way.
What about broker, commitment and exit fees?
A broker fee pays for the work of arranging the loan: assessing the deal, matching it to lenders, packaging the application and managing it to completion. How it is charged varies. Some brokers are paid a fee by the borrower, some are paid a commission by the lender, and some a mix; what matters is that the basis is transparent and disclosed up front so you know what you are paying and to whom. A good broker should save more in rate, fees and avoided dead ends than they cost.
Commitment and exit fees are less universal but worth watching. A commitment fee may be charged to hold a loan offer open, particularly on development or larger facilities. An exit or redemption fee may be charged when the loan is repaid, and on fixed-rate deals there can also be early repayment charges if you redeem during the fixed period. These tail-end fees matter most to borrowers who expect to refinance or sell before the natural end of the loan, because that is exactly when they bite.
The lesson across all the tail-end fees is to read the offer, not just the rate, and to match the loan to how long you actually intend to hold it. A deal with low up-front fees but a heavy exit charge suits a long-term hold and punishes an early refinance; the reverse suits a short hold. We weigh all of this when arranging a commercial mortgage at /services/commercial-mortgages/ or an owner-occupier mortgage at /services/owner-occupier-mortgages/.
How do you keep the total cost down?
Compare on total cost, not headline rate. The reliable way to judge two deals is to add the interest over the period you expect to hold the loan to all the fees, and compare those totals; the cheaper headline rate frequently loses once a heavier arrangement or exit fee is counted. Our commercial mortgage calculator at /calculators/commercial-mortgage-calculator/ helps with the interest side, and the fee schedule in each offer supplies the rest.
Get the full fee schedule
Ask every lender for all fees, not just the rate and arrangement fee, including valuation, legals, commitment and exit charges.
Total over your real hold period
Add interest plus fees over how long you actually expect to hold the loan, not the full term, to compare deals fairly.
Weigh cash now against interest later
Paying the arrangement fee in cash avoids paying interest on it for the term; decide which suits your cash position.
Avoid false economy on advice
Cutting corners on the survey or legals to save a few hundred pounds can cost far more if a problem is missed.
The biggest savings usually come from lender fit and leverage, not from haggling individual fees. A deal matched to the lender whose appetite fits it best tends to carry both a keener rate and lighter fees, because the lender is comfortable with the risk. That is the core of what a broker does, and it is why the total cost of a brokered deal is often lower than a borrower could reach alone even after the broker fee is counted. Most commercial lending is unregulated; where a loan falls within FCA regulation, for instance through security over a home, different protections apply and we identify that early.
Commercial mortgage fees explained: common questions
How much are commercial mortgage fees usually?
The largest is usually the arrangement fee, often around 1 to 2 percent of the loan, frequently added to the loan rather than paid in cash. On top sit the valuation fee, from hundreds to several thousand pounds, two sets of legal fees, both yours, of low thousands, and sometimes a broker fee and an exit fee. Altogether the fees commonly add up to a meaningful sum on completion, so they belong in the budget alongside the deposit and stamp duty. All figures are indicative and deal-specific.
Is the arrangement fee added to the loan or paid up front?
Most often it is added to the loan balance, which reduces the cash needed at completion but means you pay interest on the fee over the life of the loan. You can usually choose to pay it in cash up front instead, which avoids that interest. On a long loan the interest on a capitalised fee adds materially to its true cost, so if you have the cash it is worth weighing paying it up front.
Do you pay the valuation and legal fees if the deal falls through?
Generally yes. The valuation fee is paid up front and is non-refundable, so it is at risk from early in the process, and you will usually have incurred legal costs too. These are the cost of finding out whether the deal works, not a charge for the loan itself. A broker adds value partly by filtering out deals unlikely to value or pass underwriting before you spend on a valuation and legals.
Can a broker save more than they cost on a commercial mortgage?
Often, yes. A broker's value is in matching the deal to the lender whose appetite fits it best, which tends to bring both a keener rate and lighter fees, and in steering clear of dead-end applications that waste valuation and legal money. The broker fee should be transparent and disclosed up front. Judged on total cost over the life of the loan, a well-brokered deal frequently costs less than a borrower could reach alone even after the fee.
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