What Charges Are Payable When You Remortgage ?

Quick Answer: Your total remortgage cost can include early repayment charges, product/arrangement fee, legal costs, broker fee, and administration charges. You may not have to pay all of them as lender criteria differ across the UK.

Remortgaging can reduce your monthly payments, change your mortgage term, and help you with additional borrowing. However, it will cost you to switch between mortgages. Remortgage guides will explain about the process and the cost associated with it. 

Your total remortgage cost is a major deciding factor for whether you should make the switch or not. The decision only makes sense if the cost is significantly lower than the remortgage benefits you receive.

While the exact costs you will incur depend on the lender you remortgage with, here are the most common charges payable when you remortgage in the UK:

Early Repayment Charges (ERC)

ERC is often the largest remortgage cost you can incur. While it is not always applicable, you should know if your lender charges it, and when they charge it.

Most mortgage lenders charge ERCs if you end your current mortgage before the fixed-rate period ends. They are also valid on tracker or discounted mortgages before the relevant deal period ends.

These charges are typically calculated as a percentage of your mortgage balance at the time of ending the deal. The exact procedure may be different based on your mortgage contract.

An ERC is a major roadblock if applicable, but it doesn’t automatically mean you should stay with your current lender. If you find a new deal with a lender offering much better benefits, you can risk paying this remortgage cost.

However, always calculate first. Know what your ERC will be and compare it with the benefits the new deal offers. If your fixed deal is ending soon, waiting a little longer to avoid ERC altogether is the best decision.

Mortgage exit or deeds-release fee

Apart from early repayment charges, your existing lender may also charge an exit or deeds-release fee. It has nothing to do with you ending the deal early.

Your mortgage exit fee relates to the administrative costs associated with closing your existing mortgage.

The exact amount depends on your lender and mortgage terms. Some mortgages also have exit fees mentioned in the original documents.

Ask your lender about these costs as you make calculations before your remortgage.

Product or arrangement fee

This is the fee your new lender will charge.

Lenders charge it for arranging your new mortgage. Arrangement fees differ for different mortgage products. Some deals may not carry this fee at all.

Product fees often play an important role when comparing remortgage deals. While comparing different offers, it is common to get carried away by the one that offers a lower mortgage rate.

However, the comparison is truly fair only when you take the product fees into consideration. High product fees may overshadow the benefits of low mortgage rates.

Some mortgage borrowers in the UK also choose to add these fees to their mortgages. Doing this may reduce your immediate cash requirement, but you will be paying interest on these fees until the end of your mortgage term.

Reservation fee

Some mortgage lenders charge a booking or reservation fee to lock in a deal before the application gets approved. It helps you finalise a mortgage rate and be immune to fluctuations while your application is processed.

However, not all reservation fees are refundable. Always ask the lender beforehand whether they will refund these fees if your remortgage application doesn’t complete.

Valuation fee

You may consider paying this fee especially if you are remortgaging with a new lender in the UK. New lenders need to evaluate your property’s value to determine your LTV and make you a suitable offer.

Many new mortgage lenders may also offer free valuation for remortgage applications. It is still better to budget for these fees if you are planning to switch lenders. Continuing with the same lender will most likely eliminate these expenses.

Legal and conveyancing costs

Especially if you are switching to a new lender, you will need to incur some legal expenses. A solicitor or conveyancer will transfer mortgage security from your existing lender to the new one.

It is important to note that this legal procedure is different from buying a new property on a mortgage. Here, conveyancing is limited to transferring mortgage security. It doesn’t involve the property title.

Some lenders  offer free remortgage legal services, while others let you choose your solicitor and offer small cashback. Work with an experienced and whole-of-market mortgage broker in the UK to find the most suitable options (and check what a “free legal package” actually includes).

Broker fees

Your broker may charge you a flat fee or a percentage of your mortgage amount. These expenses, while not always applicable, add to your total remortgage cost.

If you wish to save more during a remortgage, it is better to work with fee-free mortgage brokers . These brokers are directly paid by the lenders in the form of procuration fees. They don’t charge you for their services and advice, reducing your remortgage expenses.

Moreover, if you are considering fee-free brokers, ask them clearly about their fee structures. Ensure that they offer FCA-regulated services that are no different from other fee-charging brokers.

Administration charges

Finally, factor in some additional administration charges before remortgaging. They depend on your lender and mortgage product, mainly revolving around fund transfers and closing your current mortgage.

While these expenses are not too high, you shouldn’t ignore them completely. Always leave some buffer to make safer decisions.

The final word: factor in every possible cost

Cost is arguably the biggest factor that can influence your remortgaging decision. Consider all possible expenses you may incur while closing your current deal and getting a new one. Calculate them and compare them with your remortgage benefits.

Make the switch only if the benefits outweigh your remortgage costs.