Remortgaging Costs
When remortgaging, you primary goal will be to reduce the amount you are paying for your borrowings. As such a remortgages‘cost’ should be a negative figure (i.e. you are saving not outlaying money).
A mortgage is a term product, in so much as you will have this facility for a predefined term, as such any savings made over the term of the mortgage should be balanced against any cost for obtaining the remortgage (arrangement fees, legal fee’s etc). A simple equation to calculate costs against savings:
(Saving per month * term of mortgage) – Fees (legal + broker + lender) = Saving
The figure outputted is the saving experienced over the term of the mortgage. If it is a negative figure this would indicate the increase in cost over the term of the mortgage.
Unfortunately, you will not experience the saving in one go, it is given over the term of the mortgage. As such, if you do not have much liquidity it may be better to stay on your current deal until you have the cash to cover the Fees described above.
Early Repayment Charges and Tie In Periods
It is important to take all fee’s into account when calculating if your remortgage will be worth while, and unlike taking out a mortgage, remortgaging has the potential for other fees you might not have considered:
Mortgages usually have a period during which you have an agreed rate or an agreed basis for rate calculation (i.e. fixed rate for 3 years or tracker for 2 years). If you choose to remortgage during this period you will certainly be subject to early repayment charges, these are fee’s levied when a mortgage is repaid within the agreed term.
Many mortgages have what is referred to as an Extended Early Repayment Charge or Tie In Period Charge. These extended charges are applicable if you remortgage within a certain period of the agreed term finishing. For example you may have a 3 year fixed rate mortgage, but have a tie in period of 4 years, meaning if you remortgage within a year after the agreed term, you will be subject to other fees.
Some mortgage lenders will not levy this fee if you transfer to another of their lending products as opposed to a competitors.
What About Fee’s Free Remortgages
Fee’s free mortgages are essentially a repackaged mortgage where the fee’s have been factored into the mortgage rate. Whilst this is better for some in that you will not have to pay large fee’s up front it is often more expensive than paying the fee’s up front.