As little as 12 months ago, there were a few lenders still charging them and 24 months ago even more than that. Of course, there are still a few lenders that do charge an exit fee on their loan products.
The quick to judge would be tempted to automatically dismiss any lender that still charges an exit fee, as one not worth considering. However, if one thinks logically about it, that would be a very short-sighted and potentially costly conclusion to come to (for their client).
The only important factor should be the total cost of the borrowing over the term of the loan. It doesn’t matter whether it is called a ‘facility fee’, ‘lender fee’, ‘admin fee’ or ‘exit fee’ (or when it falls due, either upfront, on completion or on redemption) – it is a fee payable to take out and redeem the loan. Just because part of the fee is postponed until the loan is repaid, it doesn’t mean that it is in somewhat a worse option for the client.
More-over, exit fees or Early Redemption Charges (ERCs) are as common-place in the mortgage term lending arena – in fact, you’d be hard pushed to source a mortgage with no ERCs these days. Why, therefore, has it become such a ‘taboo’ to mention exit fees in the bridging world?
I think one reason is that exit fees have been an easy target to dismiss one lender over another as being better or worse. All that matters is how much it costs the client. After all, a one per cent facility fee paid upfront and a one per cent exit fee paid on exit, is still a two per cent fee. In fact, as most lender facility fees are added to the advance on completion and interest is charged on the gross loan, surely it would be better to pay one per cent upfront and one per cent on exit, than two per cent upfront (added to loan with interest charged on it for the duration of the loan).
Another closely linked area of finance where exit fees are commonly charged is in the development finance arena - bridging’s brother or sister, if you like. Most lenders (but again, not all) charge some sort of exit fee, with fees being charged either as a percentage of the overall loan facility (better for the developer borrowing the money), or worse for the developer - a percentage of the GDV (or end value) of a new-build project, which amounts to the borrower parting with a significantly larger chunk of their profit when they redeem the loan. Favoured by the lender and loathed by the borrower.
In summary, I believe that just because a lender charges an exit fee on the loan, they should not be dismissed as a lesser lender in some way. The total cost of the borrowing, including all fees, interest and charges needs to be calculated to ascertain if a deal with an exit fee is worth considering or not.
To dismiss those lenders who do charge an exit fee would be potentially costing your client money and it just could be that the scheme you have dismissed, is in fact the cheapest option for your client!
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