There’s no doubt that remortgaging could save you a lot of money, but there are some costs to factor into the process that you need to weigh up against the saving.
There are some very good reasons to consider remortgaging. It could save you a considerable sum of money. If you’re on a fixed rate deal with your current lender, when your deal comes to an end they will put you on a Standard Variable Rate. This is likely to be higher.
It’s definitely worth looking into remortgaging as you could save money but it’s also important to ensure you’re aware of the potential costs. So what are they?
Firstly, when you apply for a new mortgage product, your lender may charge you an arrangement fee to set up the new mortgage. This amount can vary. It can either be paid upfront or in most cases, added to your mortgage, but either way, it needs to be factored into your costs.
Some lenders may charge a small booking fee – although this is rare – and a mortgage broker may charge a fee for preparing your remortgage application.
All of these amounts can vary depending on the lender and the broker so it’s impossible to be too specific on most of these costs.
Transferring your mortgage
In addition, you may need to pay a solicitor to carry out the task of transferring your mortgage from your current lender to the new one. They will also arrange for you to clear the balance owed to your existing lender. The workload isn’t as comprehensive as when you take out a mortgage, so the costs won’t be as high.
However, it also depends on who helps you with your remortgage – this cost may not be set in stone. ‘When we look to remortgage existing clients we always try to have free solicitors or a cashback from a lender to pay towards the fees,’ says MB Associates’ Managing Director, Monica Bradley. ‘We do our best to avoid our clients having to pay legal fees on remortgaging.’
Early repayment charge
You may be remortgaging if your current deal is about to come to an end. However, if you choose to remortgage early you will have to pay an early repayment charge. This is a penalty for ending the mortgage early. Early repayment charges vary but are normally a percentage of the outstanding mortgage balance owed – typically between one and five per cent. These charges are often tiered which means they may go down in each year of your mortgage deal. You may also have to pay an admin fee.
It’s important to check your mortgage agreement to see what the early repayment charge is so that you can make an informed decision. When you add up all of the costs, including an early repayment fee, remortgaging may not be worthwhile. However, securing a more competitive mortgage deal could potentially save you thousands, so it’s well worth running the numbers to work out what would be in your best interests.