Costs of remortgaging
For many people, the biggest potential cost of remortgage
comes from redemption fees associated with ending their
existing mortgage contract. These will be largest when an
early redemption penalty is incurred, but there may be some
sort of fairly low redemption fee even if the mortgage is
redeemed outside the early redemption penalty period.
Early redemption penalties are likely to be biggest when
you are still within an introductory offer period and the
rate of interest that you are paying is fixed, discounted
or capped. However, some lenders employ an overhand, where
the early redemption penalties extend beyond this period.
Depending on the policy of the lender and the size of the
loan, redemption penalties can cost several thousand of
pounds, which would obviously need to be factored into your
calculations of whether it is worthwhile remortgages. Quite
often it is not worthwhile, but you should not rule out
remortgaging within the penalty period if you are stuck
on a particularly high rate or have access to a particularly
good deal.
In addition to any redemption fees, there are a number
of other costs attached to remortgaging your property:
Firstly, the new lender will wish to value the property
to ensure it is worth sufficient money to loan you a new
mortgage. They will not rely on the valuation of the previous
lender and the cost of this is normally the same as for
a normal mortgage. However, the good news is that you will
not require another survey for your own peace of mind, as
you are likely to with a house purchase.
Secondly, there is some conveyancing work to be done as
part of the remortgage process. Again, the cost of this
is not usually as much as with a house purchase, but your
solicitor will have to perform new local searches, as the
old ones are only valid for 3 months from the date on which
they were carried out.
Many lenders will offer some form of remortgage package,
which entitle you to a refund of your valuation and legal
fees on completion of the remortgage, provided you use their
panel of professionals. If you are considering such a deal,
make sure that the package is genuinely free of charge and
not offered at the expense of a lower rate of interest.
Because the cost of conveyancing and valuations are not
linearly related to the value of the property, this type
of remortgage package tends to be more worthwhile with a
lower value property, as the costs represent a bigger proportion
of the property value.
Don't forget that when you remortgage, you will be moving
back to the start of a repayment curve. This means that
interest will once again form big part of your monthly repayments
and a smaller proportion of your payment is working towards
reducing the outstanding capital. Furthermore, most people
who remortgage generally extend the term beyond the end
of their old mortgage. This means that you will be paying
interest for longer and may face a higher long-term interest
bill, even if you appear to be making short-term savings.
