How much does remortgaging cost?

Back in April 2021, Citizen’s Advice conducted a study to find out how many homeowners fail to remortgage when they come to the end of their fixed rate deal. They found that it was as many as two-thirds of mortgage holders. Meaning potentially far higher monthly payments.

While we would assume this number is falling due to rising interest rates, the idea of remortgaging still appears to be something that people are put off by. Perhaps assuming it’s difficult or expensive to do.

But whether you want to release equity from your home or you’re coming to the end of your deal, it’s important you recognize remortgaging as an option. It really isn’t as complicated as you might think. And it doesn’t need to be expensive.

Let’s break down the costs.

How much does remortgaging cost?

When remortgaging, it’s vital you don’t simply chase the lowest interest rate, thinking that will be the cheapest option. Many mortgage deals have extra fees and costs associated with them so you will need to read the small print to understand the true cost.

Don’t panic though, if you speak to a mortgage adviser they will take all of these costs into account when offering advice.

Much like when you took out your mortgage in the first place, there will be various fees associated with remortgaging. But that doesn’t mean you will have to pay them all. Actual costs will depend on your situation, but as a rough guideline here are some of the types of fees you can expect to see during the process.

Arrangement fees

The arrangement fee is the amount you pay to your lender for arranging your mortgage deal. This might be called a product fee in some cases. Each lender will set their own arrangement fees but you will usually find that the lower the interest rate the greater the arrangement fee you will need to pay. It can often be worth paying the fee to secure a lower rate, but this, again, will depend on your situation,

You will often be given the choice to pay this fee upfront as a lump sum or to include it in the amount you’re borrowing. If possible, it’s advisable to pay this fee upfront as by adding it to your mortgage amount you’ll be paying interest on it across the term of your loan. Of course, sometimes this is unavoidable but, nevertheless, it’s important to be aware of your options.

Legal fees

Purchasing a house requires the services of a solicitor or conveyancer, and remortgaging is no different. Naturally, there are fees associated with their services. There is less work involved than when you moved house initially though, so don’t worry too much, these legal fees are likely to be less than you think.

Sometimes lenders include a ‘legal package’ in their remortgaging  offer which may help with the cost of fees. Your mortgage adviser will draw your attention to this if this is the case.

Early repayment charge

Many lenders put in place what’s called an Early Repayment Charge, or ERC. This means that if you want to get out of your mortgage before the end of the deal you will be subject to paying them an amount of money. Your mortgage adviser will be able to tell you how much this is and factor it in to any calculations if relevant.

If you have already reached the end of your initial deal and are on the Standard Variable Rate there will be no ERC applicable.

Valuation fee

It will be important to your new lender that the value of your property is ratified so they can be sure how much it is worth. This will entail a valuation which you will have to pay for.

Sometimes you will find that your potential lender offers a free valuation as part of the remortgage deal which can help to keep costs down.

Broker fee

Often, if you go through a mortgage broker to find your new deal, you will be asked to pay a broker fee. This is typically less than 0.5% of the amount borrowed.

At Lucra mortgages we are proud that we never charge a fee for the mortgage advice we offer. This means you can be certain you’ll get expert advice without being stung with hefty additional fees.

*You may have to pay an early repayment charge to your existing lender if you remortgage early.