Take into account all the remortgage costs involved in order to work out whether or not you will make any savings.
Remortgaging usually involves costs, and you ought to take these into account when assessing the advantages and disadvantages involved in switching to a remortgage deal.
Present mortgage lender costs
Firstly, you need to know the costs you are going to need to pay to your current lender.
Should you still be half-way through your existing deal, such as, a fixed or discounted rate, you are likely to have to pay early repayment charges which can prove to be high.
Early repayment charges are calculated in one of the following four ways:
- A percentage of the original amount of mortgage loan
- A percentage of the mortgage balance owing
- A percentage of the amount which has been repaid already
- A set number of months’ interest
Should your monthly mortgage interest payment be £500 and your mortgage lender charge three months’ interest as a penalty, you are going to have to pay £1,500 in early repayment charges to switch over.
This means you would need to save a minimum of £125 a month prior to breaking even in 12 months’ time. Over the course of five years you would need to make a saving of a minimum of £25 per month to make the switch worthwhile.
You may need to pay exit fees to your current lender, which can range from £50 to £300.
You may also need to make a final interest payment on your current mortgage which may be at the end of the month.
Ask your mortgage lender to provide you with a redemption statement to find out the exact amount you would need to pay to switch.
New mortgage lender costs
Should you switch to a new mortgage lender, you would need to consider the costs you will be charged as a new customer.
There could be fees related to arrangement, application, booking or completion or a combination of two or more thereof. Moreover, arrangement fees can be charged as a percentage of the loan amount. It is crucial that you work out exactly what costs are entailed for you.
Furthermore, there are legal fees that usually need to be paid, even though these fees can be minimal as there is only minimal legal work involved for remortgages.
The new lender will have to value your property so you may need to pay a valuation fee. Some remortgage deals do offer you the valuation for free.