The ultimate guide to remortgaging costs
There are many reasons why you’d want to remortgage your home. It may be that your existing deal is coming to an end, or perhaps you think you can get a cheaper deal elsewhere. If you are thinking of remortgaging your property for whatever reason, it’s important to understand the additional fees that come with it. Here, we’ll explain all the types of fees you can expect to pay so you can evaluate the true cost of remortgaging your home.
A remortgage is the process of taking out a new mortgage on a property you own with a new lender or you could also consider a product switch which is a new mortgage from the lender you are already borrowing from on your current mortgage. People may choose to remortgage their property to find a better deal that will save them money in the long run, but there are also many other reasons why people may wish to remortgage their home. For example, some may wish to extend the term of their mortgage to reduce monthly repayments, while others may simply want to remortgage their home to release some equity for home improvements or other financial needs.
When you first take out a new mortgage you can usually get an introductory deal, either a low fixed, discounted or low tracker rate. These types of deals generally last between two and five years, and after that your deal would usually be moved onto your lender’s Standard Variable Rate (SVR). SVR rates are typically more expensive than new mortgage deals, so it's an ideal time to remortgage a property to help reduce costs. Do bear in mind that you would need to check with your lender first if you’d like to remortgage.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.
There are many associated costs that come with leaving your current mortgage deal. We’ll run through them all below, so you’re prepared for any additional expenses.
An early repayment charge (ERC) is a penalty cost you will have to pay if you repay your mortgage or overpay more than is allowed during your tie-in period (the length of time you’re on an introductory deal e.g. 2-5 years). This fee is also in place if you’re switching from one mortgage deal to another.
But why do you have to pay this? Basically, a lender needs to recover the cost incurred for securing an introductory deal for you. If you pay back your mortgage early, or overpay, they'll be losing out on receiving interest from you. When you break your introductory deal, you'll be charged - typically this charge is a percentage of your outstanding mortgage debt. The longer you stay in your initial deal, the more this charge will be reduced.
If you do end up paying the early repayment charge, you can either pay the lender upfront or increase the mortgage amount from the new lender to cover the charge. It usually works out cheaper to pay your existing lender upfront, but a simple run through of costs should let you know what’s more cost effective.
A deeds release fee, sometimes known as an exit fee, is paid to your existing lender to cover the costs of removing their legal charge from your property earlier than originally planned; it’s not something you’ll typically pay if your mortgage runs its full term with a lender.
Remortgaging can save you plenty of money in the long term. To see what fees and payments you can expect, read on below.
Lenders may charge these mortgage fees when you seek a new deal. An arrangement fee is the money you pay for the lender to set up your mortgage for you and is usually the highest fee you will pay. Arrangement fees vary between lenders and situation, so it'll all depend on your individual circumstances, but the top end of fees would be around £2,000. Lenders sometimes charge lower or no arrangement fees if you are prepared to take a slightly higher interest rate than the cheapest ones on offer. It’s worth speaking to your advisers and asking them to calculate the differences, and total amount payable, as products with lower fees or higher rates can sometimes work out to be more cost effective.
You can usually choose to pay your arrangement fee upfront or add it to your mortgage payments, just consider that you’ll pay interest if you add it to your mortgage payments.
Some lenders will charge a non-refundable booking fee which pays for reserving your loan while your application goes through. You will pay between £100 and £200 for this and will be expected to pay upfront and as soon as you submit your application for a mortgage.
Your new lender will carry out a new valuation on your home when you apply for another mortgage. This fee is known as a valuation fee and it'll determine the value of your home and check that your property is adequate to secure the loan.
The good news is that most lenders won't charge you for this process. The cost varies but it will usually cost around £350.
Sometimes known as legal fees, a conveyancing fee pays a solicitor to carry out legal paperwork on your behalf. They will also charge the cost of Stamp Duty and search fees.
Thankfully, many lenders will pay the standard legal fees on your behalf, but if you choose your own solicitor or your chosen lender doesn’t offer this service, the cost will vary but the conveyancing fee will usually be around £300.
A mortgage broker is a person or company that arranges a mortgage between you and a mortgage lender. If you enlist the help of a broker, you may be charged a fee for their assistance.
Once all the above fees have been paid, then you’ll need to pay for your new mortgage. You’ll need to know the new rate you’re applying for to work out your new monthly payments, but hopefully it will work out cheaper than the rate you will revert to once your introductory deal comes to an end.
Mortgage Advice Bureau offer a tailored mortgage service, comparing thousands of mortgages from over 90 different lenders to find the right deal for you. Experienced mortgage advisers will help you along every step of the process, to make finding a mortgage deal as easy as possible.
Their advisers are there to help find the right mortgage deal for you. Just answer some mortgage related questions and an adviser will give you a call to discuss your options. Or you can visit your nearest building society branch.
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