How much will remortgaging cost?
Mortgage fees, solicitor costs & more
When considering remortgaging, it’s important to be aware of the various fees involved to determine if the process is worthwhile. This guide outlines the potential costs and charges you may encounter. While not all fees will apply to your situation, we’ve provided a timeline detailing when and to whom you’ll need to make payments, giving you an overview of the potential expenses associated with remortgaging.
If you’re looking for a new mortgage, remember that remortgaging with a different lender isn’t your only choice. You can also opt for a product transfer, which involves negotiating a new deal with your current lender.
Costs for leaving your current deal
Here are two fees you might have to pay to your existing lender, the one whose deal you’re remortgaging away from:
1. Early repayment charge
An early repayment charge is a penalty imposed if you either pay off your mortgage early or exceed the allowed overpayment limit during a specified period known as the tie-in period. This period generally corresponds to the duration of your initial mortgage deal, such as a two, three, or five-year fixed term.
Essentially, you are penalized for ending the deal before its term concludes, and the lender imposes this fee to recover some of the interest revenue they would otherwise lose. Typically, the charge is calculated as a percentage of the remaining mortgage balance and often decreases as you continue with the mortgage.
For instance, in a five-year fixed-rate mortgage, the early repayment fee might be 5% in the first year, 4% in the second year, and 3% in the third year, and so on. To illustrate, if you have an outstanding mortgage balance of £150,000:
- 5% is equivalent to £7,500
- 4% is equivalent to £6,000
- 3% is equivalent to £4,500
An early repayment charge could cost you up to 5%
How can I avoid this fee?
To avoid any penalties, ensure that your remortgage is finalized only after your current tie-in period concludes. This generally corresponds with the end of your mortgage incentive period—such as the conclusion of a two-year, three-year, or five-year fixed term.
Mistakes in timing can lead to significant financial issues, so it’s crucial to provide your solicitor with explicit instructions to ensure the date is accurately managed.
Is it ever worth paying an early repayment charge?
Numerous lenders offer the option to lock in a remortgage rate three to six months ahead of time. If your current mortgage term is nearing its end and you wish to lock in today’s rates, this can be a beneficial first step. However, if you’re unable to secure a deal right away because your current mortgage term still has some time remaining, it might be worth considering paying an early repayment charge—provided that your calculations support this decision.
Paying an early repayment charge may be advantageous if:
- You can get a remortgage deal with a much lower monthly payment than your current one. If you come across an offer with a rate that’s better than what you’re currently paying, use our Ditch Your Fix Calculator to determine if it’s financially advantageous to make the switch.
- You’re concerned that interest rates will be significantly higher by the time your current deal comes to an end. In this situation, you might consider paying an early repayment charge in order to move to a new deal now rather than later.
Essentially, you’d be paying to exit your existing agreement early in order to lock in the current interest rate, with the aim of protecting yourself from potential future rate increases. However, without a crystal ball, there’s no way to predict future interest rates with certainty, regardless of any alarming forecasts you might encounter.
There isn’t a universal solution, so the most prudent approach is to evaluate how much interest rates would have to rise before you find it challenging to keep up with your mortgage payments. If you think that interest rates might reach such a level before your current mortgage term expires, it could be worth considering breaking your existing deal early to secure today’s rate.
If you find yourself facing an early repayment charge, you have two options for handling it: you can either pay the fee directly to your current lender or opt to increase the amount of your new mortgage to cover the cost. However, keep in mind that raising the loan amount to cover this charge will also elevate your loan-to-value ratio, potentially moving you into a higher interest rate bracket.
2. Deeds release fee
Often referred to as a ‘deeds release fee’ or ‘administration charge,’ this fee is paid to your current lender to facilitate the transfer of the property’s title deeds to your solicitor.
You might have the choice to settle this fee either at the beginning of your mortgage or upon its conclusion. Since it isn’t subject to interest, it is generally advantageous to defer payment until the mortgage term ends, as the amount remains fixed.
Review your initial documentation, including the Key Facts Illustration and the mortgage offer, to ensure that the fee you’re being charged is accurate.
The deeds release fee typically ranges from £50 to £300. However, not all lenders impose this fee, so it’s worth verifying with your lender.
Costs for getting your new deal
You might encounter various additional fees as your new lender and solicitor work to finalize your remortgage arrangement.
1. Arrangement fee
Most mortgage products come with at least one fee, and often two: the mortgage arrangement fee and the mortgage booking fee.
The primary charge lenders impose is the arrangement fee. Historically, this fee covered the lender’s administrative expenses. Nowadays, it represents a significant portion of the total cost of a mortgage, alongside the interest rate. This fee might also be referred to as a product fee, or, in some cases, lenders might label it as a booking fee or application fee. Essentially, lenders can use various terms to describe it.
When selecting a mortgage, it’s crucial to examine these fees carefully. Consider the following two factors:
- Beware low rates disguising high fees. Shrewd lenders frequently employ hefty fees to enhance the appeal of their interest rates, allowing them to climb the rankings on best buy lists. It’s not uncommon for these fees to exceed £2,000. To obtain a favorable rate, be prepared to pay an arrangement fee starting at around £1,000.
- Is a low or high fee best? Deciding between a high fee with a lower interest rate or a low fee with a higher interest rate largely depends on the amount of the loan you require. Typically, higher fees are more advantageous for larger loan amounts. To determine which option is better for you, start by comparing some of the leading rates (both with and without fees) using our Mortgage Best Buys tool. Afterward, utilize our Compare Two Mortgages calculator to assess the impact of each choice.
Typically, the lender provides you with two options for handling the arrangement fee: you can either pay it upfront along with any booking fee or include it in the mortgage. Opting to add the fee to the mortgage means you’ll incur interest on it throughout the duration of the loan. On the other hand, paying the fee upfront risks losing it if the purchase falls through.
So, what’s the best approach? Fortunately, there’s a strategy that allows you to avoid both losing the fee and paying interest on it.
Add the arrangement fee to the loan – but pay it off immediately
This is how it works…
Incorporating fees into your mortgage can safeguard you from losing any upfront payments if your mortgage or property purchase falls through. This addition won’t impact your loan-to-value ratio.
However, if you’re at the top end of a loan-to-value band—especially a high one like 95%—the lender might restrict adding these fees. It’s wise to verify this with your lender.
To avoid paying interest on the fee, consider making an early repayment once your mortgage is finalized. Most lenders permit overpayments of up to 10% of the loan balance per year without incurring penalties. Still, confirming the specifics with your lender is a prudent step to ensure there are no surprises.
2. Booking fee (rare these days)
Certain lenders impose a mortgage booking fee to lock in a fixed-rate, tracker, or discount mortgage deal. This fee, which may also be referred to as an application or reservation fee, is not widely prevalent in today’s market. However, if applicable, it generally ranges between £100 and £300.
You are required to pay this fee at the time of submitting your application. Note that this booking fee is non-refundable, meaning you won’t be reimbursed if the property purchase does not proceed.
3. Valuation fee
The positive aspect here is that many remortgage deals include a free valuation. If it isn’t covered by the lender, anticipate a cost ranging between £300 to £500, though in certain instances, particularly with higher-value properties, it could rise to around £1,500.
Lenders require this valuation to ensure their investment is secure. It allows them to assess the property’s value in case of default, enabling them to repossess and sell it for a reasonable amount.
Thankfully, this is the only valuation expense you will encounter. Unlike purchasing a new home, there is no need for additional costs such as a homebuyer’s report or structural survey.
This fee will generally be due when you apply for the mortgage, often alongside the mortgage booking and arrangement fees.
4. Conveyancing fee
Legal procedures are necessary to eliminate the original lender’s claim on the property and to record the new lender’s interest.
On a positive note, many remortgage deals come with a complimentary legal package. However, the downside is that the lender usually chooses the solicitor and is likely to cover only basic costs, which might result in slower service.
Keep in mind when remortgaging:
- If you’re adding/removing a partner to/from the mortgage, you need to tell your solicitor this. Extra work is required, and it won’t be covered by any free legal package. Therefore, you should obtain a quote from the solicitor. Failing to disclose this information early on might lead to delays if it only becomes apparent during the completion stage.
Typically, the conveyancing fee is approximately £350. However, this expense is often covered by your new lender. Should you need to pay the fee out of pocket, it will be required to be settled in advance.
5. Broker fee
When working with a broker, you might encounter fees. However, many brokers offer their services without charging a fee, which can help you save money.
If you do end up with a broker who charges a fee, it could range from a set amount, such as £300, to up to 1% of the total loan value (for example, £1,000 per £100,000). These fees can be quite costly.
The fee you pay may also be influenced by whether the broker keeps the commission they receive from a lender. A reputable broker might be open to lowering your fee if they receive a significant commission. It’s always a good idea to inquire about this.
Be cautious with brokers who require payment of the fee upfront. Prepaid fees can be at risk if you later choose not to proceed with the mortgage. Whenever possible, try to arrange to pay the fee upon the mortgage’s completion, although note that it cannot be added to the loan amount.
- Use our guide for top tips on finding a broker. Our Cheap mortgage finding guide explains where to look for a broker, the differences between them and the important questions to ask.
6. Your NEW mortgage repayments
To determine your precise monthly mortgage payment, it’s crucial to know the interest rate you’ll be securing. If you’re still in the early stages of your search, our Mortgage Best Buys tool can help you gauge a reasonable rate.
Next, check out our guide on finding affordable mortgages. This comprehensive resource will walk you through the process of locating and applying for an excellent mortgage deal. Once you have your rate in hand:
- Utilize our mortgage calculator to determine your monthly repayment amount. You can modify the mortgage term—such as 25 years—to observe how changes affect your monthly payment and the overall repayment total throughout the mortgage period.
Your mortgage payment is a recurring expense, but ideally, you’re refinancing to secure a favorable deal. Keep in mind that your initial payment may be higher than your regular monthly payment because it covers the interest for both the month in which you took out the mortgage and the upcoming month.
Looking for more mortgage help?
We’ve got lots of other helpful guides:
- Remortgage guide. Free guide which has tips on when remortgaging’s right, plus how to grab top deals.
- Cheap mortgage finding. How to find the top deal for you.
- Mortgage best buys. Find your top mortgage deals.
- Should you remortgage? What to ask yourself before remortgaging.