Costs
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.
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Remortgages
Guide
