By Naomi Caine

Millions of borrowers could be paying over the odds for their mortgage because they do not pay the arrangement fee upfront. Instead, it is added to the home loan.

The typical mortgage fee has doubled over the past year. You can now expect to pay a fee of about £1000 when you take out a mortgage, but some lenders charge much more. The Rate Matcher mortgage from HSBC, for example, charges a fee of up to £4999.

But more than one-third of borrowers - 38% - add the arrangement fee to their mortgage, inflating the cost. If, for example, you added a fee of £4000 to your 25-year home loan, it would end up costing £8682, or more than double the original charge.

The average mortgage arrangement fee of £987 would cost £2094 - 112% more than the original fee, according to figures from uSwitch.

Many borrowers add the fee to the loan on the advice of their lender or broker. But some do not fully understand the implications, or even realise they have agreed.

According to uSwitch's calculations, the mortgage industry rakes in an extra £8.7 billion from borrowers who add the fees to their mortgage.

Ann Robinson, director of consumer policy at uSwitch, says: "This is a real catch-22 for consumers who are struggling to find the funds to pay mortgage set-up costs. In fact, by allowing consumers to add fees on to the mortgage, it could be argued that providers are doing them a good turn. This is particularly true for first-time buyers where it could mean the difference between getting on the property ladder or not.

"However, adding fees to a mortgage means that you will be spreading the amount over many years and paying interest for the pleasure of doing so - this is an extremely expensive option and should always be seen as a last resort. If you can in any way manage to pay the fee upfront this will always be your best option."

The fees also make it more difficult for borrowers to compare mortgages. For example, a mortgage with a high rate can work out cheaper than a mortgage with a lower rate, if it charges a smaller fee. Experts therefore advise consumers to ask the lender to provide illustrations of the monthly payments both with and without the fee added to the loan.