If you’re thinking of switching your home loan, what is most important to you? The headline interest rate? The service from the lender you’re remortgaging to? Or the fees involved in the switch?
A leading consumer website revealed in 2011 that fees for fixed and variable remortgage deals had risen by 13 per cent in the preceding 20 months. So, if you’re considering a remortgage, it’s crucial that you factor in any fees before you decide to proceed. Fees come in all shapes and sizes and our guide looks at the most common fees you’ll encounter.
Data published in summer 2011 found that between September 2009 and June 2011, remortgage arrangement fees rose by one seventh with many deals charging arrangement fees of over £700-£800.
Clare Francis from the website that commissioned the research said: “When looking for a new mortgage, it’s easy to be lured in by low headline rates, however it is vital borrowers take into account arrangement and booking fees as part of the overall cost.”
Sometimes, a remortgage deal with a higher rate and lower fee can actually work out cheaper than a deal with a low ‘headline’ rate. For example, on a £100,000 ‘interest only’ mortgage, a two year fixed rate at 3 per cent with a £999 arrangement fee would cost £6,999 over two years. A deal at a higher rate of 3.25 per cent with no fee would cost £6,500 over the same period – a saving of £499.
Ms Francis added: “That said, for some people it may be worth paying a high fee in order to benefit from the lowest interest rate. It will all depend on the amount you are looking to borrow – on large mortgages a high fee can be worth paying in order to secure a low rate.”
When you remortgage, the new lender will need to value your home. This is to establish that there is sufficient security on which to lend and that your loan remains within their ‘loan to value’ limit.
Many lenders will meet the cost of a survey as part of the ‘remortgage package’ associated with a fixed or discounted deal. However, some lenders will charge you for this valuation. Costs for a survey vary depending on the value of your home and can range from £200 to over £1,000.
When you switch your home loan from one provider to another, there is some legal work involved. Even if it is a straightforward remortgage a conveyancer will have to obtain a settlement figure from your existing lender and repay the loan. They may also have to conduct searches on behalf of your new lender.
As above, a lender will sometimes meet the cost of the conveyancing involved in your remortgage. However, others will insist you employ your solicitor and foot the bill. And, if there is any additional work involved – perhaps you are transferring the title from single to joint names – you are likely to have to pay for this.
Many people employ the services of a mortgage broker when they remortgage. Mortgage brokers can scour the market to find the best deal for clients and can also help liaise with lenders to simplify the remortgage process.
Many brokers receive their income from the mortgage lender with whom they place your loan. However, some brokers charge for advice. Make sure you understand what fee your broker is charging you and factor this in when deciding whether it is financially viable to remortgage.
Charges to your existing lender
As well as any fees that you may pay to your new lender, you may also have to pay some fees to your existing mortgage company. These could be in the form of:
- Early repayment charges – these generally apply if you are within the period of a fixed or discounted rate. For example, if you come out of a fixed rate deal early you will generally pay a penalty for doing so
- Admin charges – your existing lender may charge an administration fee or ‘closing fee’ for ending your account
- Deeds handling fees – Your existing lender may levy an administration charge for holding your deeds during the term of the mortgage or for handling them and providing them to your solicitor
Take fees into account when you remortgage
When switching your home loan it is easy to be tempted by a low headline interest rate. However, it is important that you take any fees into consideration before proceeding. A good mortgage broker can help you weigh up the costs and benefits of a remortgage to establish whether it is worthwhile.