How much will remortgaging cost?
Mortgage fees, solicitor costs & more
There are different fees when it comes to remortgaging, so it's crucial to know the costs when working out if it's worth it. This guide explains what fees and charges you're likely to face. Some won't apply to you, but we've listed them in a timeline of what you'll have to pay, when, and to whom so you can get a rough idea of how remortgaging can cost.
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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:
An early repayment charge is a penalty applied if you repay your mortgage (or overpay more than is allowed) during a tie-in period. This is typically the length of time you are on an initial deal, eg, fixed for two, three, five years etc.
Basically, you're being penalised for breaking the deal early so the lender uses the fee to recoup some of the interest it is losing. The charge is usually a percentage of the outstanding mortgage debt – it often reduces the longer you stay with it.
For example, on a five-year tracker deal, the early repayment charge could be 5% in year one, 4% in year two, 3% in year three…you get the gist. So on a £150,000 outsanding mortgage:
- 5% is equivalent to £7,500
- 4% is equivalent to £6,000
- 3% is equivalent to £4,500
You need to be sure you've done your sums correctly if you intend to pay this. You'd need to get a remortgage deal with a much lower monthly payment than your current one to make it worth ditching.
An early repayment charge could cost you up to 5%
If you do end up paying it, you can choose whether to pay the lender you're leaving upfront, or increase the mortgage amount you're applying for from the new lender to cover the charge. Just be aware that increasing the loan size to cover the cost of this charge will increase your loan-to-value ratio, which could push you into a more expensive band.
How can I avoid this fee?
If you don't want to pay it, make sure your remortgage completes AFTER your current tie-in ends. This is usually when your mortgage incentive period ends – for example at the end of a two-year, three-year, five-year fix etc.
It's a financial disaster to get this wrong and you want to make sure your solicitor has clear instructions to get the date right too.
Known as a 'deeds release fee' or an 'admin charge', this is is paid to your existing lender so they can forward on the property's title deeds to your solicitor.
It's quite common to be offered the option of paying this upfront when you first set the mortgage up, or at the end of the mortgage when you're leaving. As you're not paying interest on it, it makes sense to opt to pay at the end as the figure doesn't change.
A word of warning... lenders have been known to be extremely naughty in this area and charge higher amounts than was agreed at the outset. If it wasn't communicated in writing to you when you first took the mortgage out, your lender shouldn't be charging it.
Check your original paperwork (the Key Facts Illustration and the mortgage offer) to check the amount you're being charged matches up.
The deeds release fee will set you back between £50 and £300, but not all lenders charge this fee, so check.
Costs for getting your new deal
There are also a number of other fees you could end up paying so that your new lender and solicitor can set up your remortgage deal.
Most products have at least one mortgage fee, if not two – the mortgage arrangement fee and the mortgage booking fee.
The big fee lenders charge is the arrangement fee. In the past, this covered a lender's administration costs. Now it's the key part of the true cost of a mortgage, along with the interest rate. It can also be called a product fee, or confusingly some lenders might call this a booking fee or application fee. In fact, your lender can conjure up any name for it.
Before you choose a mortgage, always look at the fees. There are two things you need to think about:
- Beware low rates disguising high fees. Cunning lenders often use high fees to make their interest rates look more attractive, so they rise up the best buy tables. Some charge fees of £2,000+. Expect to pay an arrangement fee of at least £1,000 to secure an attractive rate.
- Is a low or high fee best? Whether it's best to go for a high fee/low-rate deal, or a low fee/high-rate deal depends on the size of the loan you need. Generally speaking, higher fees work better for larger loans. Benchmark some top rates (with and without fees) using the MoneySavingExpert Mortgage Best Buys tool, then use our Compare Two Mortgages Calculator to see the effect.
The lender will usually offer you the option to pay the arrangement fee upfront (at the same time you pay any booking fee) or, you can add the fee to the mortgage. The disadvantage of adding the fee to the mortgage is you'll pay interest on it, as well as the mortgage, for the life of the loan. But if you pay the fee upfront, there's a chance you could lose it if anything went wrong with the purchase.
So what should you do? Luckily, there's a trick you can use here to ensure that you don't lose the fee, but also don't pay interest on it.
Add the arrangement fee to the loan – but pay it off immediately
This is how it works...
If you add the fees onto your mortgage, it protects you from losing any part of the fee paid upfront if your mortgage (or property purchase) doesn't go ahead for any reason. Don't worry about it affecting your loan-to value band, adding it won't.
Saying that, if you are at the top of a band, particularly if it's 95%, the lender might not allow you to add it. So do check.
To avoid paying interest on the fee, if you can, quickly 'overpay' after the mortgage completes. Lenders usually allow overpayments of 10% of the balance each year without penalty, so you should be fine – but, again, it's best to check so you're safe not sorry!
Some lenders charge a mortgage booking fee to secure a fixed-rate, tracker or discount deal – it's sometimes also called an application fee or a reservation fee. This fee isn't common in the current market, but if your lender does charge it it's unlikely you'll pay more than £100-£200.
You'll need to pay this fee (if your chosen mortgage has one) as soon as you submit your application. This booking fee's non-refundable, so you won't get it back if the property purchase falls through.
The good news here is that many remortgage packages give you this for free. If it's not paid for you, expect to pay around £300-£400 – though in some cases it can be significantly more, depending on the value of the property.
Lenders require a valuation for their security, so they can be sure that if things go wrong and you fail to repay, they can repossess the property and get a decent amount for it when sold.
Fortunately, this is the only survey cost you'll face. Unlike buying a new home, you won't need to shell out for a homebuyer's report or structural survey.
This fee will need to be paid when you apply for the mortgage (often together with the mortgage booking and mortgage arrangement fee)
Legal work is required to remove the original lender's interest from the property and register the new lender.
The good news is that many remortgages include a free legal package. The only downside is that the lender will select the solicitor and chances are it is paying the bare minimum so don't expect a high-speed service.
And do remember when remortgaging:
- If you're adding/removing a partner to/from the mortgage, you need to tell your solicitor this. There's additional work involved and it won't be included in any free legal package, so you need to get a quote from the solicitor. If you don't tell them upfront, it could cause delays later if this doesn't come to light until you're completing.
The conveyancing fee costs around £300, but usually your new lender will cover the cost. If you have to pay this fee yourself, you'll have to pay it upfront.
If you're using a broker, it may charge you a fee. But there are many brokers who are fee-free, and it's worth using one to save yourself money.
Where you use a broker who charges a fee, it can be anything from a fixed fee of £300 to 1% of the loan amount (£1,000 per £100,000), which can be expensive.
What you pay can also depend on whether the broker is going to keep the commission it gets from a lender. A good broker may be willing to reduce your fee if they are getting a decent amount of commission. Always ask.
Beware brokers who ask for the fee upfront, as with most fees paid in advance, you could lose it if you later decide not to go ahead. Where possible, ask to pay the fee when the mortgage completes (but you can't add it to the loan).
- 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.
To work out your exact monthly payment for your new mortgage, you need to know the rate you'll be applying for. But if you haven't even started looking yet, use our Mortgage Best Buys tool to benchmark a realistic rate.
Then have a read of our Cheap Mortgage Finding, which'll give you a FULL rundown of how to find and apply for a top mortgage. Once you know your rate:
- Use our mortgage calculator to find out your monthly repayment. You can adjust the mortgage term (eg, 25yrs) up and down to see the difference it makes to your monthly payment, as well as the total amount you'll repay over the entire mortgage term.
Your mortgage payment's an ongoing cost, but hopefully you're remortgaging to a cheaper deal. And remember, your first payment's likely to be higher than your normal monthly payment as you pay interest in the month you get the mortgage, as well as for the upcoming month.
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