What Remortgaging Might Cost You
Remortgaging means replacing your current mortgage with a new deal, either with the same lender (a product transfer) or a different one. This can deliver benefits such as a lower or fixed rate and more flexible terms, but it could carry costs. It may also depend on your loan-to-value (LTV) and credit profile.
Breakdown of Remortgaging Costs
The decision to remortgage may be driven by a desire to reduce monthly payments, fix for certainty, or release equity for purposes such as debt consolidation and home improvements. It is essential to understand the full range of costs involved:
- Exit charges: Fees payable on your existing mortgage if you leave during a tie-in period. These often include an Early Repayment Charge (ERC) of around 1% to 5% of the outstanding balance and, in some cases, a mortgage exit administration fee.
- New lender fees: Product/arrangement and valuation fees are common when setting up a new mortgage. However, if re-mortgaging to another provider, some offer a fee-free re-mortgage service covering the cost of a basic non-disclosed valuation and legal fees by using one of their “panel” solicitors.
Strategic Considerations for Remortgaging
Timing matters. Many lenders let you secure a new rate 3 to 6 months before your current deal ends, helping you avoid ERCs while protecting against future rate moves. Waiting in the hope that rates fall is speculative; consider whether a rate lock or a shorter fixed term suits your plans. The longer you expect to stay in your home, the more time there is to recoup any upfront costs through lower monthly payments.
It is also wise to consider how your credit score affects the rate offered. A stronger credit profile could unlock a better choice of lenders, better pricing and lower overall borrowing costs.
Additional Costs to Anticipate
Aside from the primary fees, there are other potential costs associated with remortgaging:
- Legal fees: Remortgage legal work is usually simpler than purchase legal work. Many lenders offer free legals or cashback; if you instruct your own solicitor, you will need to budget for this and get some quotes including disbursements. Full local searches are often not required, with search indemnity used instead.
- Penalties: If you leave your new fixed or discounted deal early, an ERC will typically apply. Some lenders also have small charges if a valuation is cancelled or an application is withdrawn.
Understanding these fees and when they apply will help you budget and decide whether remortgaging is the right move. Calculating the break-even point – where savings from the new deal outweigh the costs – is a crucial step.
Costs Associated with Exiting Your Current Mortgage
When you leave your current lender, you may face several fees. The most significant is usually the Early Repayment Charge (ERC), commonly up to 5% of your outstanding balance if you exit during a tie-in period. ERCs typically taper down over time (for example, 5%, then 4%, 3%, 2%, 1% over successive years) and compensate the lender for lost interest.
You may avoid an ERC if your fixed rate period has ended, or if your lender allows you to lock in a new deal within an early-switch window (often 3 to 6 months before your current deal ends) with completion after your tie-in expires. If you switch lenders before the term ends, you will usually have to pay the ERC. For example, on a £250,000 balance, a 5% Early Repayment Charges would be £12,500.
Another potential fee is a mortgage exit administration fee (sometimes called a deeds release or account closure fee). This typically ranges from £50 to £300 and covers the lender’s administration in closing your account and releasing their charge.
Some lenders also charge a funds transfer (CHAPS) fee when sending redemption monies to your solicitor, usually around £25 to £50.
To minimise these charges, plan your remortgage around any ERC exemption periods and the end of your current deal. Compare the potential savings with the new rate against these costs to ensure that remortgaging provides a net financial benefit over time.
Understanding the Costs of Acquiring a New Mortgage
Taking out a new mortgage also involves various fees. Headline rates can be attractive, but you should consider the overall cost of the deal
Conveyancing Fees
Conveyancing fees cover the legal work to switch your mortgage to a new lender. Many remortgage deals include free legal work or cashback. If you pay yourself, check early on with the solicitors about their fee plus disbursements; full local searches are usually not required for a remortgage, with search indemnity commonly used.
Mortgage Broker Fees
Using a mortgage broker can simplify finding the best deal. Fees vary: some brokers charge nothing and are paid by the lender, while others charge a fixed fee or a percentage. Ask about their fee and commission structure upfront.
Arrangement and Booking Fees
The product/arrangement fee can range from £0 to £2,000 or more (commonly £999 to £1,499). You can often add this to the loan, though doing so means paying interest on it. A separate booking or application fee of around £99-£250 may apply and is often non-refundable.
Valuation Fees
Some lenders charge valuation fees to assess the property’s value, though many offer free valuations on remortgages. Where charged, costs typically range from £100 to £1,500 depending on the property value and lender.
Additional Considerations
Be aware of minor administrative charges. A funds transfer (CHAPS) fee of around £30 to £50 is standard. If you’re considering a fixed-rate mortgage, understand the length of the fixed term, any early repayment charges, and the reversionary rate (such as the lender’s Standard Variable Rate) when the fix ends. Your mortgage broker will be able to provide you with an illustration detailing all the facts and figures.
By evaluating all charges associated with setting up the new mortgage, you can budget accurately and ensure remortgaging aligns with your financial goals.
Calculating Your New Mortgage Payments
To estimate your new monthly payments, you need the new interest rate and remaining term. This is crucial to assess whether remortgaging will be beneficial. Your mortgage adviser can confirm the specific rate you qualify for with your chosen lender along with an illustration.
Steps to Calculate Your New Mortgage Payments
Firstly, consider speaking to a qualified mortgage adviser for personalised guidance.
Calculating your potential monthly payments after remortgaging involves a few key steps:
- Identify the interest rate: Confirm the exact rate offered by the new lender. Pricing varies by LTV, credit profile and market conditions.
- Determine the loan amount: Use the remaining balance of your current mortgage. Decide whether to add any product fees to the loan or pay them upfront.
- Loan term: Decide the repayment term for the new mortgage, which may differ from your current term.
By understanding these elements, you can forecast your monthly costs and judge whether the switch makes economic sense.
When considering remortgaging, it’s vital to not only look at potential monthly repayments but also to understand all the costs potentially involved, including fees and possible penalties. Along with the advice from your qualified mortgage adviser, this ensures you make informed decisions that align with long-term financial goals.
Timeline and Tips for Remortgaging
The remortgaging process generally takes four to eight weeks, depending on the complexity of your case and the efficiency of all parties.
Staying with your current lender can be convenient if they offer a competitive product transfer; this often reduces legal work and costs. Alternatively, shopping around may secure a lower rate or better features. Also if you’re looking to raise additional funds for home improvements or debt consolidation.
Utilising a Mortgage Broker
Employing a mortgage broker can streamline the remortgaging process. They can offer access to a broader array of lenders and possible exclusive deals not directly available to the public. Mortgage brokers are handy for navigating complex credit situations or for finding specialised lending products. Their expertise can be invaluable for effectively comparing the market, ensuring you secure the best possible deal tailored to your financial situation.
Key Tips for Efficient Remortgaging
- Assess your financial goals: Be clear whether you want to lower monthly payments, reduce the term, fix for certainty or consolidate debts.
- Check your credit score: Make sure your report is accurate and up to date before applying.
- Consider the timing: Aim to start 3 to 6 months before your current deal ends to avoid ERCs. The mortgage adviser will be able to contact your existing lender for your product transfer options and compare it with whole-of-market alternatives.
- Prepare for valuation: Ensure your property is well presented before the valuation, as this can affect the loan amount and terms offered by the lender.
By following these tips and considering both your current lender’s offers and the potential benefits of switching to a new lender, you can make a well-informed decision that aligns with your long-term financial goals. Remember, each remortgaging scenario is unique, and what works for one homeowner may not be the best choice for another. Always consider personalised advice from financial experts or mortgage brokers when remortgaging your property.
You can contact one of our independent advisers for personalised advice and support in making confident, informed decisions by using our Facebook or Contact Us pages, or speaking to a colleague in our office on 01329 282882.
Please note: The content of this blog is for your general information purposes only and does not constitute as Financial advice.
Your home may be repossessed if you do not keep up repayment on your mortgage.
