If you want to take advantage of a more attractive mortgage deal or increase your borrowing against the security provided by your home, you might want to consider a remortgage. A remortgage simply replaces your existing mortgage with an alternative that typically offers more favourable terms and conditions, greater borrowing, or repayment terms over an extended period.
These might all be compelling reasons but, when deciding whether or not to remortgage, you will also need to take into account the cost of doing so and weigh these against any benefits you might enjoy.
The cost of remortgaging
The following are some of the costs you might expect to pay – both for leaving your current mortgage and for setting up the replacement remortgage:
Early repayment fees
- if your mortgage is still on a fixed-rate or tracker period, your current lender is almost certain to recover some of the lost earnings from a higher rate of interest by charging you an early repayment penalty;
- the charge is typically calculated as a percentage of the outstanding mortgage balance – and, according to an article in Which? magazine, updated in May 2020, may be significant;
Exit fee/administration charge
- you may also be charged a fee or administrative charge for closing your account although this is typically a small amount;
- as the Money Saving Expert explains, this may also be described as a Deeds Release Fee – to cover the administrative cost of forwarding the title deeds of your home to your solicitor;
Remortgage arrangement fees
- your remortgage is effectively a new mortgage – replacing your current mortgage, of course – and there are similar fees to set up the remortgage just as you paid when setting up the original loan;
- the arrangement or product fee is typically in the region of £1,000, suggests the Which? article – a sum which you might anticipate by adding it to the total sum you aim to borrow by way of your remortgage.
Remortgage legal fees
Many remortgages are also likely to involve legal fees. Although the Home Owners’ Alliance (HOA) explains that if you are remortgaging with the same lender for a replacement deal, this is likely to be considered a “product transfer” and almost no legal work is involved.
In all other cases, you are likely to need to instruct a solicitor or conveyancer to take care of a certain amount of legal work – although the HOA mentions that some mortgage lenders offer a free legal package to cover this aspect of your remortgage.
What is involved in those legal services?
According to the HOA, the various conveyancing fees that might be involved include the conveyance itself, which might include:
Confirmation of your ID
- your proof of ID helps the solicitor or conveyancer protect against money laundering;
Details of your current mortgage
- your solicitor requests a “redemption statement” from your existing lender, showing the balance of the outstanding mortgage, together with any exit or early repayment charges;
- if you own the lease of your home – rather than its freehold – your solicitor needs to check the remaining period of the lease and whether it complies with the conditions set by your remortgage lender;
- enquiries made by your solicitor to various authorities about plans or issues that might affect the mortgaged property;
- the lender will require an up to date valuation of the property used to secure your remortgage;
- the lender will expect your solicitor to confirm that you have never been declared bankrupt;
- priority searches are typically made of the Land Registry and elsewhere immediately before completion of the remortgage contract to ensure that nothing has changed since the remortgage process commenced;
- when your solicitor receives the remortgage funds from your new lender, he will arrange for the old mortgage to be paid off, together with any fees charged, and send the remaining funds to you.
Inclusion of the legal fees in your remortgage
Your remortgage legal fees need to be paid upfront and are incurred before completion of the remortgage contract – so, strictly speaking, it is not possible to include these costs in your remortgage.
If you have anticipated the likely cost of your remortgage legal fees, of course, you might simply include that amount in the sum you apply to borrow through your remortgage.
If your remortgage lender has offered a free conveyancing service package, you may disregard any need to anticipate the cost, which does not need to be incorporated into the amount you borrow.
Finally, if you are paying your remortgage legal fees yourself, then you are free to instruct conveyancers of your choice and do not need to rely on those chosen by your lender.
Speak to a mortgage broker for further help and advice on this matter.