What Fees Do I Need To Pay When Remortgaging?
As a homeowner, you might choose to remortgage for several reasons:
• To reduce their existing debt to a cheaper home loan
• Because you anticipate lower interest rates
• To take advantage of better interest rate deals such as extended fixed or capped rates
• To release equity, or capital, to pay for an extension, new car, holiday, university fees etc.
• To consolidate a number of debts with a single loan secured on the home.
When mortgage rates look set to rise, loans offering fixed or capped interest rates become attractive. In contrast, where interest rates are predicted to fall, many homeowners tend to prefer remortgage loans that are offering a standard or discounted variable rate.
The usual costs that are incurred when taking out a remortgage include:
• Valuation fees
• Conveyancing fees
• Lenders' legal costs
• A Mortgage Indemnity Guarantee (MIG) premium (levied when the loan-to-property value exceeds a given ratio (e.g. 70%)
• The costs of any negative equity on the previous mortgage
• Arrangement fees and booking fees
• Any early redemption penalties on the previous mortgage
Valuation Fees are often waived when you remortgage as your new lender will probably cover the cost of a revaluation. Understandably the lender will want to know what the property is worth compared to the amount you wish to borrow, particularly since the housing market has waned in recent months and property values are not what they once were. Costs of valuations can vary from around £75 for a simple revaluation to well over £1000 for detailed surveys on more expensive properties.
Conveyancing Fees are paid to a solicitor who ensures that all the legal obligations are met and the new mortgage is set up. A solicitor will also ensure your existing mortgage is repaid and make arrangements for the title deeds to be sent to the new lender to fulfil the loan conditions. Solicitors charge their clients in a variety of ways, by a fixed fee, or as a percentage based on the value of your property. There may be extra fees levied to cover the cost of paperwork and time spent on complex issues beyond what is usually anticipated. Conveyancing fees can range from between £500 to £1,500, depending on the work involved and the value of the property, and you should expect to see additional costs that have been incurred during the process such as postage costs, photocopying, VAT, (known as 'disbursements') on your final invoice.
Your lender will pass on to you the charges of their own legal costs which are incurred to ensure their legal interests are taken care of. You'll be surprised how far many lenders will go to retain business, so if you are planning to switch mortgage products but remain with your current lender, they may be persuaded to waive their legal costs and other disbursements as a gesture of goodwill.
Mortgage Indemnity Guarantee (also known as Mortgage Indemnity Premium of Higher Lending Charge (HLC)) is a charge levied to safeguard the lender from the borrower's inability to make their mortgage repayments. It is an insurance that covers the costs the lender incurred if they are forced to repossess and re-sell your house. You will only be expected to pay these premiums if your mortgage exceeds 75% of the property's value. Some lenders don't charge the fee on mortgages of up to 90% so it is worthwhile shopping around as this can add thousands to your costs.
If your property value has suffered from the housing market decline and is now less than the balance of your existing mortgage, you are in the unfortunate position of having negative equity. Your existing mortgage will need to be repaid before you can take out a new loan and this shortfall will need to be met by you.
The average product or arrangement fee on a mortgage is currently around £800. Some lenders introduced no-fees remortgages before the housing market collapsed, although they may be less available now. The fees will range from several hundred pounds to over 1% of the total mortgage amount in some cases. Many lenders are happy to add the fee to the loan (where it will accrue interest), and a few demand payment up front. It is always sensible to establish if the fee will be refunded if your mortgage application is refused.
Before committing to any type of loan, it is sensible to ensure you have a written redemption statement with the official settlement figure of your current mortgage balance. This will show any early redemption penalty and other charges like a "sealing fee" – paid to your previous lender to close your account.