Rebecca Gamble Consumer Journalist - Home Owners Alliance Online
There are a number of remortgaging costs you may need to pay when you take out a new deal. These can run into thousands of pounds so it’s essential you know where you stand before you start. Here’s what you need to know and how to keep costs down…
Remortgaging costs explained
The amount it will cost you to remortgage depends on your current mortgage deal and the mortgage you’re moving to. For some borrowers, remortgaging costs will be a few hundred pounds or less. But for others, remortgaging costs can run into thousands of pounds.
Remortgaging costs are broken down into:
Remortgaging costs of leaving your current deal
Remortgaging costs of taking out a new deal. Remortgaging costs of leaving your current deal Let’s look at these remortgaging costs in the UK more detail:
1. Early repayment charge
An early repayment charge (ERC) is a fee you may have to pay if you pay off your mortgage before the agreed end of your deal by remortgaging or paying off the balance. An ERC is usually calculated as a percentage of your outstanding mortgage balance. This is typically between 1% and 5% although the percentage you pay often reduces over time. It could amount to thousands of pounds making it potentially the most expensive remortgaging fee you may need to pay.
For example, on a 5 year fixed deal, the early repayment charge could be 5% in year one, 4% in year two, and so on. So on a £200,000 outstanding mortgage balance:
5% is equivalent to £10,000
4% is equivalent to £8,000
3% is equivalent to £6,000
There are things you can do to avoid needing to pay an early repayment charge including:
Remortgaging with the same lender, known as a product transfer, although this limits your mortgage choice so you may pay more than you need to. Plus, you may only be able to do this in the last few months of your term.
Timing it right: If your current mortgage deal ends within the next six months you can start the remortgage process now and time it so that you switch deals as soon as you can do so without incurring the charge.
Porting a mortgage: If you’re moving house, you may be able to avoid needing to pay the ERC by porting your current mortgage to your new house. Find out more in our guide on Porting a mortgage explained.
For more information, read our guide on Early repayment charges and how to avoid them.
2. Mortgage exit fee
Exit fees, sometimes known as mortgage release or discharge fees, are admin charges a lender may charge when you pay off your mortgage in full or remortgage. Not all lenders charge these, but if they do it may be up to £300. The exact amount will be set out in your mortgage offer.
Remortgaging costs of getting your new deal
Remortgaging costs you may need to pay when getting your new deal in the UK include:
1. Mortgage arrangement fee
The biggest cost is likely to be your mortgage arrangement fee; it can also be called the product fee or completion fee.
When you’re comparing mortgages, you should consider:
Is a low rate disguising high fees? Some of the best mortgage rates often come with high mortgage arrangement fees. These might be £500 to £1000 but could be £2000 or more.
Is paying a higher fee worth it? In some cases, paying a higher arrangement fee in order to get a lower rate will save you more money overall. But the easiest way to work it out is to get a fee-free mortgage broker to do the calculations for you and explain your options.
You’ll usually have the option to pay the mortgage product fee upfront or to add it to your mortgage. But if you add it to your mortgage, you’ll increase the amount you owe. Be sure to check whether the fee is refundable if the mortgage doesn’t go ahead. If it isn’t, it may be possible to request that the fee is added to your mortgage and then to pay it once your application has been approved and is definitely proceeding. Your mortgage broker will be able to run through this with you.
2. Mortgage valuation fee
When you remortgage, if you switch to a new lender, they will require that a mortgage valuation survey is carried out. The mortgage valuation survey cost usually varies depending on the size of the property, however some lenders charge a flat fee. For example with Santander mortgage valuations, the mortgage valuation fee is £180 on all properties up to £2.5 million.
Some lenders throw in free valuations as part of a remortgage deal but don’t let that alone sway you. A deal with a lower interest rate is likely to save you far more over time, even if you pay more for the mortgage valuation. For mortgage advice, speak to a fee-free mortgage broker that can advise you on the best deals.
3. Legal fees
You won’t need to pay legal fees when you remortgage if you’re borrowing more on your existing mortgage deal with your existing lender or if you remortgage with your current lender, by simply moving to a new rate or deal.
But otherwise, you will need a solicitor or conveyancer, to help with the legal side of things when you remortgage. This can cost several hundreds of pounds if you need to pay it and you’ll need to pay this upfront. However, your lender may offer a free legal package. Read our guide Remortgaging: Do I need a conveyancing solicitor?
4. Broker fees
A mortgage broker’s expert advice can be invaluable in ensuring you make the right decision about your mortgage. However, while some mortgage brokers are fee-free, like our partners at L&C, some mortgage brokers charge a fee for their services. This could be up to 1% of your loan amount. That’s why we have partnered with L&C who offer fee-free mortgage advice.
5. New monthly payments
When you move onto a new deal, if your new rate is different then your mortgage payments will be too. So factor this into your remortgaging costs.
Is there a remortgage cost calculator I can use?
Yes. You can use our free mortgage cost and repayments calculator to see how much your payments will be when you remortgage.
What is the cost of remortgaging with the same lender?
The cost of remortgaging with the same lender may be lower. For example, you may be able to avoid needing to pay an early repayment charge and avoid legal fees too. But by sticking with the same lender you may end up paying more overall. So to find out for sure, you’ll need to work out the remortgaging costs with your current lender compared with if you switch to a different lender. But you don’t need to do this yourself. A fee-free mortgage broker at our partners L&C can do the calculations for you to help you decide on which is best for you.
How long does it take to remortgage?
You should leave up to 3 months to remortgage but it could be much quicker and if you switch to a new deal with your current lender, it can take around a week.
You can actually start your search six months before your current deal expires. This lets you lock in a rate and then you can keep it under review with L&C’s Rate Check service to make sure you don’t miss out on a better mortgage rate before you need to switch. Find out more in our guide How long does it take to remortgage?
When is the best time to remortgage?
If your current mortgage deal ends in the next six months you should start the remortgage process now. It’s a good idea to chat through your options with a fee-free mortgage broker. If you’re on your lender’s standard variable rate, you should urgently review your remortgage options because typical SVR rates are significantly higher than the best remortgage deals available.