Remortgaging Costs∶ Understanding the Expenses Involved
Today you'll see all kinds of competitive offers to entice you into switching mortgage. You might see great rates that grab your attention, but this doesn't necessarily mean you'll be saving as much as you might think.
Even with higher or competitive interest rates, lenders are using fees to make more money. Some lenders are using high fees to make their interest rates more competitive. So it can be tricky to compare your options and understand how much does it cost to remortgage.
In this article, we'll take you through the fees and remortgaging costs you may be charged by the lender, solicitor, and broker when opening and closing a mortgage account.
This way you'll know exactly what you might expect to pay upfront when you find remortgage deals with a current lender or a new lender.
You'll then have the knowledge to work out the “true cost” of a remortgage deal so you can compare them without getting caught out by hidden remortgage fees associated with a remortgage deal, thereby enabling you to save money in advance.
Fees charged by the lender at the start of a mortgage deal
Also known as "reservation fee", the booking fee is a non-refundable fee that you pay when you apply for a new mortgage deal. This fee “reserves” your mortgage funds while your application is under review.
Normally the amount is around £100, but sometimes it can be as high as £200. It is sometimes labelled as an “Application Fee”.
Lenders charge an arrangement fee to set up your mortgage at the start. It is sometimes known as the “Completion Fee.” The cost can vary significantly from lender to lender.
Sometimes it is a fixed cash amount, but in some cases, it is a percentage of the mortgage balance. You can expect to pay at least £1,000 but the fee could be £2,000 or even more depending on different lenders.
The lender will commission a basic valuation of your property. This is a basic inspection and the fee covers things like adequate security. The fee is non-refundable once the lender has commissioned the mortgage valuation.
However, if your application was declined at an earlier stage before the valuation, then you'll be refunded normally.
The size of the fee may depend on the value of your property, with lenders charging around £300 to £400.
Valuation Administration Fee
Mortgage lenders may also charge a flat fee to arrange for the valuation. Usually, it's no more than £50-£100.
Like the valuation fee, it may or may not be refundable in the event of your application being declined by the lender.
CHAPS Fee aka. Telegraphic Transfer Fee
You can think of this as a bank transfer fee charged for sending the mortgage funds to your solicitor. This fee is usually paid upon completion of your mortgage arrangement.
So if the application was declined, you'll avoid this fee. It's usually £25 to £50.
Sometimes the CHAPS fee is named as a 'Telegraphic Transfer Fee'.
Own Building Insurance Fee
You can choose to purchase building insurance as part of your current mortgage deal with your existing lender or elsewhere. If you choose to buy it elsewhere, you'll need to pay your lender the “Own Building Insurance Fee” so that they can check that they're satisfied with your insurance policy.
Don't forget, all homeowners require building insurance by law. The fee is normally paid at the completion stage. It's usually £25, and is sometimes called a “Freedom of Agency Fee.”
Mortgage Account Fee
Some lenders charge a fee that covers administration to set up, maintain and close your mortgage account. It is usually charged on mortgage completion, although if it is paid upfront it is refundable if you don't go ahead with the new mortgage deal.
Typically you'll pay £100 to £300 for this.
Higher Lending Charge
For homeowners with a small deposit, a Higher Lending Charge (HLC) may be applicable. A mortgage with a high loan-to-value (LTV) ratio adds more risk to the lender. The HLC fee is used by to lender to purchase a Mortgage Indemnity Guarantee, in case you default on the mortgage.
This fee is only charged once the mortgage application has been approved. This fee can be significant and depends on the size of mortgage and the LTV ratio.
Missed payment charges
It is normal for lenders to charge a fee if your mortgage account is in arrears. The size of the penalty will depend on the lender's policy. While none of us plan to miss a mortgage payment, it is worth keeping it in mind when choosing your mortgage for your peace of mind.
Many of the fees we have outlined above can be either paid upfront or rolled into your mortgage and paid off with the balance. While it may be tempting to avoid upfront payment, it's important to realise that you'll be paying more for two reasons.
Firstly, you'll be paying interest on these fees, and second, the fees could push you into a higher LTV band meaning a higher interest rate.
The downside to upfront payment is that you may not get a refund for some of the fees if you don't complete the mortgage. To protect yourself against this scenario, the trick here is to add these fees to the mortgage, and then pay the fees off immediately after your mortgage is approved.
Mortgage fees paid to the lender when you exit
Redemption Administration Fee
A fee is paid to the lender for closing your account. It varies from £50 to £300. There are various names for this fee such as “Exit fee”. A Redemption Administration Fee isn't usually charged if you paid a Mortgage Account Fee to start with.
Early Repayment Charge
If you exit a mortgage deal during the introductory deal period, for example exiting a two-year fixed mortgage after a year, you'll be paying a hefty Early Repayment Charge.
The fee is usually an eye-watering amount. Normally it's 1-5% of the value of the early repayment, but it depends on various circumstances such as the size of the mortgage.
You'll need to hire and pay a solicitor to arrange the paperwork for the mortgage deal. Even if the mortgage deal is not completed, you'll need to pay legal fees for the work done by the solicitor to that point.
The solicitor fees are usually around £300 but depend on various aspects such as the type of property, and whether it is a purchase or remortgage. It's also commonly known as a “conveyancing charge”.
Some lenders offer free legal fees as an incentive, so be sure to consider this when comparing mortgage options.
You may find it helpful to work with a mortgage broker or financial adviser to find the best mortgage deals. A licensed broker must disclose their fees before you hire them. The fee may be a fixed amount or a percentage of the loan amount.
Some brokers are fee-free as they can earn commissions directly from lenders, so it may be worth comparing broker fees before you go ahead.
Other fees when you move home
Don't forget that you'll have to pay stamp duty on the purchase of a new home if it is worth more than £125,000. If you're purchasing a buy-to-let property, you'll be facing an even higher stamp duty bill.
However, there is an exception for first-time buyers, who do not pay any stamp duty on the first £300,000 of a home worth less than £500,000.
Moving home could mean moving all your furniture belongings. So there are costs of removals to take into consideration as well.
True cost of a mortgage
Clearly, there is a wide range of possible fees to pay when you remortgage. The cost to remortgage and the appropriate fees vary depending on the lender. That's why it's important to take all the fees into account when comparing mortgage options to find the best one for you. We call this comparing the “true cost” of the mortgage.
The “true cost” of a mortgage is the same as the total cost of the mortgage. The “true cost” takes into consideration all the fees and incentives offered by the lender.
An independent mortgage broker can be a great way to find out the true cost of different mortgages. The broker will look into the rates, fees, and incentives before suggesting the best deals for you, which will save you time.
Alternatively, you could have a go at comparing the true cost of a mortgage using a true cost mortgage calculator.
To summarise, remortgaging can seem like a good idea with competitive rates and offers available, but it is essential to understand the fees involved before making a decision. Lenders charge various fees for opening and closing a mortgage account, including booking fees, arrangement fees, valuation fees, CHAPS fees, own building insurance fees, mortgage account fees, higher lending charges, and missed payment charges. It is essential to add these fees to the mortgage and pay them off immediately after approval to avoid higher interest rates and non-refundable fees if the deal falls through.