Savings vs. Cost

The main reason why remortages are popular is because it effectively allows you to reduce your monthly repayments. Even if there might be a few charges such as early redemption penalties that you may have to pay if you remortgage, it can still work out to be a better deal for you overall if you go ahead and make the switch. Still, it is best to contact your current lender first to make sure that the fees you might end up paying for switching do not offset the savings you are going after.

To illustrate how much you may save, imagine that your twenty-five year mortgage of £100,000 is subject to a Standard Variable Rate of 7.5% and you are paying around £735 a month.

Now if you switched to a twenty-five year tracker mortgage (with the interest rate linked to the Bank of England Base Rate) at 5%, you could be looking at repayments of £580 per month instead. That’s a potential savings of £1800 over a year.

The cost of remortgaging

There are usually some costs associated with remortgaging, depending on the current lender. Often, when a borrower arranges for a remortgage, a penalty indicated in the terms and conditions of the mortgage will apply. Other costs related to remortgages include valuation fees and associated costs (i.e. legal and administrative charges).

Also, people who take out a remortgage tend to extend the term of the new loan to the point that it will actually take longer to pay off the mortgage compared to the original loan. If the term is stretched to far, it could offset the potential savings, even if the new interest rate is much lower.

What this means is that is worth comparing the whatever potential savings you might make versus the costs involved at the time of your remortgage and down the road as you pay off your new loan. However, in many instances, the fees you end up paying for a remortgage are recovered by savings due to the resulting lower rates of interest.