When it’s time to remortgage, it’s important not to choose a deal based purely on the lowest interest rate, thinking it’s the cheapest option. You need to read the small print to understand the true cost of remortgaging.
Remortgaging is something most of us have to do at some point in our lives. Whether it’s to switch to a better deal, release equity, or because your current deal is ending.
Despite the obvious benefits of remortgaging, a small minority of borrowers avoid remortgaging because of the hassle and cost they think is associated with it. Research from Citizens Advice found that two-fifths of homeowners failed to remortgage at the end of their fixed term which resulted in considerably higher bills. Remortgages don't have to be scary though, which is why we wanted to break down the costs.
How much does remortgaging cost?
When considering how much remortgaging costs, you need to factor in the fees associated with the mortgage deal, as sometimes the price of the fees can outweigh the benefits of a low interest rate. Don’t worry though, a mortgage adviser will take all of this into consideration when offering advice on the right mortgage for your needs.
There are various fees associated with remortgaging but you won’t necessarily have to pay all of them. How much you pay depends on your individual situation, but as a rough guideline, these are the fees that you might have to pay when going through the remortgage process.
Also known as a product fee, you pay this to your lender for arranging your mortgage deal. The amount you pay will depend on the lender but generally speaking, the lower the interest rate on the mortgage, the greater the arrangement fee.
There are usually two ways you can pay the fee, either upfront as a lump sum or by adding it onto your mortgage. It might seem steep to pay it all in one go, but remember, if it’s added to your mortgage you’ll have to pay interest on it, so it’s worth considering which option is right for you.
When remortgaging you’ll need a conveyancer, or solicitor who will charge a legal fee for their services. Some remortgages include a legal package, so check this with your mortgage adviser or lender. The legal fees for remortgaging is less than if you were moving house, as there is less work involved.
Early repayment charge
If you want to leave your current mortgage deal before it finishes then you may have to pay an early repayment charge (ERC) to your lender. If your current deal has already ended and you’re now on a standard variable rate (SVR), you won’t have to pay an ERC.
When remortgaging, your new lender will need to value your property to see how much it is worth. Sometimes a free valuation is included in the remortgage deal, but make sure you check this first.
Mortgage brokers take the hassle out of you having to find your own mortgage deal. They also offer an end-to-end service, ensuring the entire process runs as smoothly as possible. If you do use a mortgage broker, rather than going straight to a bank, you may need to pay adviser fees.
Your home may be repossessed if you do not keep up repayments on your mortgage.
There may be a fee for mortgage advice. The actual amount you pay will depend on your circumstances. The fee is up to 1% but a typical fee is 0.3% of the amount borrowed.
You may have to pay an early repayment charge to your existing lender if you remortgage.