Remortgaging can save you money, but it is not always free, so it pays to know the costs before you switch. This guide explains how much remortgaging costs, covering the fees you might face, which are often waived, and how to weigh the costs against the savings to decide if it is worthwhile.
The main costs of remortgaging
The costs of remortgaging can include an arrangement or product fee on the new deal, a valuation fee, legal or conveyancing fees, an early repayment charge if you leave your current deal early, and sometimes an exit or deeds release fee from your old lender. Not all of these apply to every remortgage, and some are often waived, but it is worth knowing each one so you can work out your total cost.
Arrangement and product fees
Many mortgage deals carry an arrangement or product fee, which can range from nothing to around £2,000. A deal with a low rate but a high fee is not always cheaper overall than one with a slightly higher rate and no fee, especially on a smaller mortgage, as our guide to mortgage fees explains. You can sometimes add the fee to the mortgage, though that means paying interest on it.
Valuation and legal fees
A remortgage usually requires a valuation of your property, and there is legal work to move the mortgage to a new lender. The good news is that many remortgage deals include a free valuation and free or assisted legal work as an incentive, so these costs are often covered. Where they are not, a valuation and conveyancing can add a few hundred pounds, which you should factor into your comparison.
Early repayment charges
If you leave your current deal before it ends, an early repayment charge may apply, often 1% to 5% of your balance, as our guide to early repayment charges explains. This is frequently the largest potential cost, so timing your remortgage to avoid it, or checking that the savings outweigh it, is important. Many people remortgage as their deal ends precisely to avoid this charge.
Exit and other fees
When you repay your old mortgage, your previous lender may charge a small exit or deeds release fee to close the mortgage and release the legal charge on your property. This is usually modest compared with other costs. Knowing it exists means it does not come as a surprise, and it should be included when you add up the total cost of switching to a new deal.
Product transfers can be cheaper
Staying with your current lender through a product transfer is often cheaper than a full remortgage, since it usually avoids valuation and legal fees and may have a lower or no product fee, as our guide to product transfer or remortgage explains. The trade-off is that you are limited to your lender's deals, which may not be the most competitive, so weigh the lower cost against the possibly higher rate.
Weighing costs against savings
The key question is whether the savings from a new deal outweigh the costs of getting it. Work out how much you would save each month on the new rate, and compare that against the total fees and any early repayment charge. Often a better rate pays back the costs within a year or two, after which you are saving, but on a small mortgage with high fees the maths may not add up.
Keeping costs down
You can keep remortgage costs down by choosing deals with free valuations and legal work, comparing the overall cost rather than just the rate, timing your switch to avoid early repayment charges, and considering a product transfer where it is cheaper. A broker can help you compare the true cost of competing deals, so you choose the one that leaves you genuinely better off after all the fees.
Adding fees to the mortgage
Some lenders let you add the arrangement or product fee to your mortgage rather than paying it upfront. This avoids a large initial cost, but you then pay interest on the fee over the mortgage term, so it costs more in the long run. Adding the fee can ease cash flow at the time, but it is worth knowing that doing so increases the overall cost compared with paying it upfront.
Cashback and incentive deals
Some remortgage deals offer incentives such as cashback, free valuations, or free legal work, which can offset the costs of switching. A deal with cashback or free legals can make remortgaging effectively low-cost or free. When comparing deals, factor in these incentives as well as the rate and fees, since they affect the true cost of switching and can make one deal noticeably better value than another.
A worked example of costs versus savings
Suppose switching to a new deal saves you £150 a month, but the new deal has a £999 fee. The saving covers the fee in under seven months, after which you are better off. If instead the saving were only £20 a month against the same fee, it would take years to break even, and the switch might not be worth it. Comparing the saving against the cost like this guides the decision.
Costs on a product transfer
A product transfer with your current lender usually costs less, often with no valuation or legal fees and sometimes no product fee, as our guide to product transfer versus remortgage explains. This lower cost is part of its appeal, though it must be weighed against the rate, since a cheaper switch to a less competitive rate may save less overall than a full remortgage to a better deal.
Getting a clear comparison
The best way to judge whether remortgaging is worthwhile is to get a clear comparison of the total cost of each option, the rate, the fees, any early repayment charge, and any incentives, against your current deal. A mortgage broker can produce this comparison, showing the true cost of competing deals. Armed with it, you can choose the option that genuinely leaves you better off rather than being swayed by the headline rate.
Often cheaper than staying put
Although remortgaging has costs, the most expensive option is usually doing nothing and drifting onto the standard variable rate. Against that, even a remortgage with some fees often works out far cheaper, as the better rate saves more than the costs. So while it is right to weigh the fees, remember that the comparison is not just cost versus free, but the cost of switching against the often greater cost of staying put.
In short
Remortgaging can involve an arrangement fee, valuation and legal fees, a possible early repayment charge, and a small exit fee, though valuations and legal work are often free on remortgage deals. The early repayment charge is usually the biggest potential cost. Weigh the total cost against the monthly savings; a better rate often pays back within a year or two. Product transfers are frequently cheaper than full remortgages.
Where to get help and next steps
Read our guides to ERCs, product transfers, and what remortgaging is. This is general information, not mortgage or financial advice.