The real cost of re-mortgaging

Your home may be repossessed if you do not keep up repayments on your mortgage.

Most people switch mortgages to reduce their monthly payments and the total loan amount. However, it is important to understand how and when to do this if you want to ensure you get a good deal. So bearing this in mind we thought we’d offer some tips on how to get a remortgage that’s right for you.

Act sooner rather than later

If you took out your initial mortgage on a low rate deal for a specific period, eg 3 years, don’t wait until this initial period runs out before you start looking for a new deal. Leaving it to the last minute puts you at risk of slipping into your lenders Standard Variable Rate (SVR) which is usually a lot higher than your initial rate and will increase your mortgage payments considerably. We would recommend you start looking three to four months before the end of your initial term giving you adequate time to explore all options and secure a new deal.

Check out all options

As lenders are in fierce competition you will see lots of mortgage deals on offer. Don’t be tempted to only look at the options your current lender is offering as there will be many others to consider too. A whole of market mortgage adviser will be able to look at many different options and more importantly find the right one for you.

Improve your credit score

Your financial circumstances may have changed since you were approved for your initial mortgage. As lenders will check your credit file again when you remortgage it’s important that you check your credit score yourself a few months before applying for a remortgage so you have enough time to correct any errors. You can improve your credit score if needed by:

  • Avoid making any credit applications in the months leading up to remortgaging
  • Closing any bank accounts you don’t use
  • Using and paying off a credit card to build credit history

Do the calculations

The cost of a mortgage isn’t just what you borrow. Other costs to calculate for include:

  • Arrangement fee-This is the fee a lender charges to cover administration costs. This fee will vary but on average will be around £1,000
  • Transfer fee-This covers the cost of transferring money to your solicitor and is around £50
  • Legal fees-Legal work is required in order to remove the original lenders interest from the property and register the new lender. These fees will vary.
  • Booking fee-Some lenders will charge a mortgage booking fee to secure a discount, tracker or fixed-rate deal. It’s sometimes called a reservation or application fee and is usually between £100-£200
  • EPC-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 usually the length of time you are on an initial deal, eg, fixed for three years. The cost is usually between 1-5% of the outstanding mortgage balance. You will need to do your calculations if you intend to pay this and ensure you get a remortgage deal with a much lower monthly repayment than your current one to make it worthwhile.
  • Valuation fee-Lenders will need a valuation of the property to ensure if things go wrong and you don’t pay they can repossess the property and sell to recover their money. Many lenders offer free valuations for remortgages and those that don’t will charge on average between £300 and £400.

Think carefully before remortgaging and speak to a professional mortgage adviser who will be able to calculate the overall costs and find the right remortgage for your needs.