Remortgaging can be an ideal solution for raising cash, paying off bad debt and getting your finances back on track.
However, it’s not as simple as finding a deal with the most attractive interest rate or working with a broker who understands the subprime mortgage market.
There are fees involved and they can add up to a significant amount. Sometimes too much that you’re forced into adding the fees to the loan amount. If you plan to do that, you also need to consider how that’s going to impact on your loan-to-value ratio.
The fees you’ll likely encounter when remortgaging
This is a charge to be on the lookout for as it can add up to £300 to your expenses. You can either pay this charge upfront to your existing lender, or you can tack it onto your remortgage. If you choose to do that, it’s going to affect your loan-to-value ratio, thus affecting interest rates on your remortgage deal.
This is also referred to by some lenders as an exit fee or a deeds release fee. This charge is for your lender to forward the title deeds of your property to your solicitor. That’s it. The amounts charged for this vary by lender and will be stated in your Key Facts Illustration as well as your official mortgage offer.
Every lender has these fees and some are sly on how they use them. Many of the lower interest rate mortgages are bolstered by a high fee to access it. It has been known to be upwards of £2,000. There are also some lenders that will have no arrangement fees, but in that case, it’s usually a higher interest rate.
This is a fee for which lenders can allow you to add it onto a homeowner loan, provided you aren’t applying for a 95% LTV mortgage offer as it’s likely to push your loan amount over what the lender can offer.
To secure a mortgage offer, there are some lenders that will have a booking fee, which is only to secure the mortgage offer. Price-wise you can expect this to be a maximum of around £200, and it is payable upfront and non-refundable so if the deal falls through, the booking fee or arrangement fee as it’s sometimes called will be lost.
There are brokers who don’t charge fees and work on a commission basis, whereby they get paid for arranging the mortgage with the lender. Some will charge a fee though so you’re best to check first.
If there are fees involved in using a broker, the best price will be a fixed fee. The higher cost is when the fee is based on a percentage of the loan value. Just a 0.5% broker fee for your entire homeowner loan amount will be far higher over the long-term than a fixed fee. Of course, your best course of action is to find a fee-free broker. Where brokers do charge fees, they all vary so you will have to inquire with each to find out if there are fees and if so, how much.
Early repayment fees
If you intend to remortgage to raise cash for whatever reason before your current mortgage deal expires, there’s every chance that you’ll have an early repayment fee applied. This is standard with all lenders as they base their profits on the longevity of your mortgage term. If you’re on a five-year fixed term deal, the lender will have calculated how much profit they’ll get from your loan. When you back out of the deal earlier than expected, that’s a loss to the lender. To counter the cost, a clause is put into the mortgage terms that should you exit the deal before it expires, you’ll have to pay an early repayment fee. Not all mortgages have this, but the majority do.
In terms of how much it’ll cost it’s usually up to 5% of your mortgage value.
If you are going to incur an early repayment charge, there are two ways you can go about paying it. You can 1) use your own money or 2) Factor it into your remortgage. If you choose to add the early repayment fee onto your new mortgage, it is going to affect your loan to value ratio, which can take a knock-on effect on the interest rate you’ll be offered.
When you’re looking through various remortgaging deals, you’ll notice that many include a free legal service. This will be a solicitor of the lenders choosing and it only includes the bare minimum which is to transfer the lender’s name on the property’s title deeds. That’s it. It will not take into account any personal changes you need doing so if you’re remortgaging after a split with a partner and want a name removed or you’re adding a name to it, there will be legal fees payable upfront. The cost for amendments is generally £300.
All lenders need to know the true value of your property as that’s their security. The valuation fee can cost up to £400. The vast majority of remortgaging lenders forego this fee though, so it’s free to you – in most cases. You don’t need to shell out for a home buyers report or the likes for a remortgage simply because you aren’t buying a new home.
When remortgaging with bad credit there is usually a higher upfront cost due to the higher deposit required on most deals. There are always going to be added fees though so you need to factor in what your true upfront costs will be and what fees you may need to work into a new homeowner loan to cover the fees.
Early repayment fees and arrangement fees will be the highest, but the few hundred here and there will also add up.