How Much Does Remortgaging Cost? The Fees to Expect

Remortgaging offers homeowners an opportunity to secure more favorable loan terms or access home equity. While a lower interest rate or reduced monthly payment is appealing, it is important to understand that remortgaging involves various associated costs. Understanding these fees is essential for anyone considering switching their mortgage.

Key Fees Associated with a New Mortgage

When securing a new mortgage, several fees are typically incurred, collectively known as closing costs. These costs generally range from 2% to 6% of the loan amount, though they can vary based on location and lender. For example, a $300,000 remortgage could incur costs between $6,000 and $18,000. These fees cover various services and administrative processes necessary to originate the new loan.

Lender fees are charges from the financial institution providing the new mortgage. An “origination fee” compensates the lender for processing the loan application and covers expenses like underwriting and paperwork generation. This fee is commonly between 0.5% and 1% of the total loan amount. For instance, on a $250,000 loan, this could amount to $1,250 to $2,500.

Lenders may also charge an application fee, typically ranging from $75 to $500, to cover the initial processing of your loan request. Some lenders might waive or discount this fee as an incentive. Additionally, borrowers might encounter “discount points,” which are optional upfront fees paid to reduce the interest rate on the new mortgage. One point typically equals 1% of the loan amount.

Another common expense is the valuation or appraisal fee, which covers assessing the property’s market value for the lender’s security. Appraisal fees usually range from $300 to $500, varying by property size and location. Some lenders may offer “free valuations” as part of their remortgage packages.

Legal fees, also known as conveyancing fees, cover the services of an attorney or conveyancer handling the legal aspects of transferring the mortgage. This includes title searches, document review, and proper registration. While fees vary, some lenders offer “free legal packages” as an incentive. Borrowers should understand what these packages cover and if they prefer their own legal representation.

Mortgage brokers facilitate the process by connecting borrowers with various lenders and helping them find suitable loan products. Brokers typically earn a commission, which is often between 1% and 2% of the loan value. This fee can be paid by the borrower at closing, or by the lender, sometimes being rolled into the loan amount. Borrowers should clarify the broker’s fee structure upfront to understand how their compensation is handled.

Costs Related to Your Existing Mortgage

Switching mortgage providers often involves specific charges levied by your current lender. These fees compensate the existing lender for the early termination of their agreement or for administrative tasks involved in closing the account. Understanding these potential costs is important before committing to a new mortgage.

A significant charge to consider is the Early Repayment Charge (ERC), also known as a prepayment penalty. This fee is a penalty if you pay off or remortgage your loan before the end of a specified term, such as a fixed-rate period. ERCs are typically calculated as a percentage of the outstanding mortgage balance, often ranging from 1% to 5%. For example, a 5-year fixed-rate mortgage might have an ERC of 5% in the first year, decreasing annually.

The application of an ERC depends on the mortgage type and the remaining term of your current loan agreement. Fixed-rate mortgages commonly include ERCs to offset the lender’s potential loss of interest income. Review your current mortgage documents to determine if an ERC applies and how it is calculated, as these charges can amount to thousands of dollars.

Another fee that may be charged by your existing lender is an “exit fee” or “deeds release fee.” This is a smaller administrative charge for closing your mortgage account and releasing the property’s title deeds. While typically a fixed and relatively minor cost, it is distinct from an Early Repayment Charge. These fees are generally much lower than ERCs, often varying by lender.

Additional Potential Expenses

Beyond the direct costs associated with securing a new mortgage and exiting an old one, some less common or situation-specific expenses may arise during a remortgage. These additional costs, while not universal, can impact the overall financial outlay. Being aware of them helps in preparing for unexpected charges.

Transfer taxes, sometimes referred to as mortgage recording or real estate transfer taxes, could apply in specific scenarios. For instance, if you are transferring equity by adding or removing a co-owner, or if your state levies a mortgage recording tax on the new loan amount, this expense may be incurred. This tax is imposed by state or local governments when a mortgage is recorded.

Disbursements are minor, third-party costs paid by your attorney or conveyancer during the legal process. These include fees for official document copies, bankruptcy searches, and bank transfers. While typically small, they are itemized by the legal professional. These fees ensure all necessary checks and registrations are completed accurately and legally.