The arrangement fee is the percentage that the bank charges us to set up our mortgage loan.
This fee is mainly there to cover administration and management costs, though also to conduct a necessary risk assessment of the borrower's financial profile, solvency and ability to repay their debt. As customers, we will have to pay this amount in cash upon arranging the loan, and depending on the type of mortgage, it can range from 0.25% to 3% of the total mortgage amount. With a fixed-rate mortgage, this percentage will be between 0% and 3%, while for a variable-rate mortgage, it will typically be between 0% and 1%.
Some banks may also allow us to finance this fee by adding it to the amount of the loan, meaning we will have to pay it along with the interest it generates.
While it used to be considered an essential requirement for granting the mortgage and offering the borrower the requested funds, it is now possible to negotiate this fee with our bank.
The Mortgage Law (Ley Hipotecaria) views the arrangement fee as non-essential and calls for transparency. The bank must be able to show that this fee is charged for the provision of a real and concrete service; i.e. it must be able to prove that the service has been effectively provided and was also requested and/or accepted by the borrower.