Nobody wants to pay more than they have to for a mortgage on their property, so remortgaging is always worth thinking about.
Most people do this when they are nearing the end of their current mortgage deal and are free to shop around without paying penalty charges.
But there are a few things to consider before you sign up for a new deal, and chief among these are fees involved in remortgaging– and there are quite a few to look out for.
What are remortgage fees?
Remortgage fees are the extra charges you pay when you look to remortgage your home. They can cover a range of things, from early repayment charges with your existing lender to administration, legal costs and brokers’ fees when setting up the new mortgage.
They can range from nominal sums to thousands of pounds, and some might even be covered by your new lender. All should be factored in when working out the best remortgage deal available.
What fees will I have to pay when remortgaging my home?
There are several fees you could pay. Not all will always apply, but we’ll go through them in turn here. Some lenders may use different terminology for their fees, so they won’t always fall into the categories below.
Early repayment charges: You’re usually only likely to pay an early repayment charge if you’re switching mortgages before your current tie-in period comes to an end.
For example, you might have taken out a mortgage that is fixed for five years, including the tie-in period.
The charge is often a percentage of the outstanding mortgage, and it’s usually higher the earlier you wish to leave.
For most homeowners, an early repayment charge makes switching to a new deal too expensive, so they’re better sticking with the current deal until the tie-in period ends.
When it comes to paying an early repayment charge, you’ll usually have two options: you can either pay the lender you are leaving in a lump sum or increase the size of your mortgage with the new lender to cover the charge.
Arrangement fees: This is likely to be one the biggest to look out for. It was traditionally to cover the lender’s admin costs, but is now often used by lenders to offset lower interest rates that they use to entice borrowers.
You’ll usually be offered the option of paying it up front or adding it to the mortgage, and there are pros and cons to both.
The benefit of paying upfront is that you will decrease the overall amount you owe and pay less over time in interest
The advantage of adding it to the mortgage is that you won’t have lost a big sum if, for any reason, your remortgage deal falls through.
Another option would be to add it to the mortgage and then overpay as much as your bank will allow without incurring a penalty, until the equivalent of the arrangement fee is cleared.
Not all mortgages will have an arrangement fee, but it’s likely that those which don’t will have a higher interest rate to recoup the cost over the term.
Administration charges: This is to pay for your current lender to send on your title deeds to your solicitor, so it is also known as a deeds release fee.
Not all lenders charge this fee, and you may be offered the option of paying it upfront or at the end of the deal.
There’s no interest to pay on it, so unless you just like getting your bills paid up and out of the way, consider leaving it until the end.
Finally, check your original paperwork (key facts illustration and the mortgage offer) to make sure that what you’re being charged is the amount stated when you first took the deal. If it hasn’t been detailed from the outset, you shouldn’t have to pay.
Booking fees: You might be charged a mortgage booking fee to secure a new deal. It's sometimes also called an application fee or a reservation fee and can be up to around £300.
This fee needs to be paid on application and is non-refundable, so if the remortgage doesn’t go ahead you’re unlikely to get the money back.
Valuation fee: Lenders require a valuation of the property so they can be confident that there’s enough value in it to clear your debt, in the event that you cannot repay the mortgage and your home is repossessed.
While it could cost you up to £400, most lenders will give you remortgage valuations for free.
Unlike buying a new home, you won't need to pay for a homebuyer's report or structural survey.
Conveyancing fee: Replacing the existing lender with the new lender on the deeds of the property requires some legal work.
Usually this will be done by a solicitor, and if it’s straightforward it’s likely to be included as part of a free legal package with the remortgage.
However, if you’re not just remortgaging to get a cheaper deal, but adding or removing a partner from the mortgage, for example, there’s likely to be some more legal work to do. This could incur a fee of a few hundred pounds.
Broker fee: Some brokers won’t charge a fee but others will, and this can be anything from a fixed fee of around £300 to 1% of the loan amount, which can work out to be fairly expensive.
If a broker charges an upfront fee, be wary as you may not be refunded if you decide not to go ahead with any deal they find. They might be willing to reduce your fee if they’re getting a decent amount of commission, so it’s always worth asking.
You can work out your options with our article on 'Mortgage advice explained'.
Will it be cheaper to stay with my current lender?
It may be cheaper to stay with your current lender – you may want to consider the option of a cheaper remortgage deal if you can find one, and then ask your existing lender if they can better it.
One advantage of staying with your current lender is that you can avoid many of the remortgage fees. If this makes the overall package cheaper, then it might be worth doing.
For more questions on remortgaging your home read our Remortgage Q&A.
When is the best time to remortgage?
Often the best time to remortgage is when your tie-in period of your existing deal ends.
This way you’ll avoid paying an early repayment charge, and also avoid being shifted to the lender’s standard variable rate, which is likely to be higher.
However, you don’t need to wait to look around and have a deal agreed. Lenders’ remortgage offers tend to be valid from around three to six months, so you can set one up ready to kick in as soon as the tie-in period ends.
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