One of the main reasons why homeowners look to remortgage is to save money. Whilst there are other reasons to consider a remortgage – to benefit from a fixed rate or to borrow additional funds – saving money is the principal aim of most.
So, finding a ‘fees-free’ remortgage deal might sound like the obvious best choice. These deals involve a lender meeting the legal and valuation fees incurred in your remortgage, meaning that you don’t have to shell out for any costs. However, there are certain circumstances where actually paying one or more fees involved in the remortgage process may actually be worthwhile. Our guide explains why.
Pay a fee for a better deal: A true ‘fees-free’ remortgage will offer a fixed or discounted/tracker mortgage product with no arrangement fee or booking fee. However, depending on the size of your mortgage, you could actually be better off by paying such a fee.
For example, you want to remortgage your $150,000 ‘interest only’ home loan onto a fixed rate. The ‘fees-free’ deal is at 5.5% for five years but the lender also has a deal at 5% for five years with a $999 fee. The lower rate actually saves you a total of $3,750 over the five years, so even taking the $999 fee into account; you will be $2,751 better off. In this case, paying a fee actually saves you a substantial sum.
Go for the best deal, not the best remortgage deal: Another way you can save money is to not restrict your search to products with a ‘remortgage package’ – where the lender meets the valuation and legal costs of a remortgage. Sometimes, paying for a valuation and paying your solicitor to undertake the legal work to benefit from a very low rate deal can be cost-effective.
Using the example above, suppose there was a 4.5% fixed rate deal for five years but that you had to pay the costs yourself. The lower rate would save you an additional $3,750 over five years. So, even if you had to pay for a valuation fee (at $400) and the legal fees (at $350) you would still end up much better off over the term of the fixed rate.
Paying a broker: Many homeowners go it alone when looking to switch their home loans. However, there may be several good reasons to use a mortgage broker to find a deal for you. Brokers typically have access to the widest range of remortgage products; indeed many can offer rates that are ‘exclusive’ to them and not available to the general public.
Even if your broker charges a client fee, you often find that the deal they will find for you saves you a considerable amount – certainly a lot more than any fee you will pay to them directly.
Paying early repayment charges: In some instances, it can be worth paying an ‘early repayment charge’ to your existing lender to benefit from a better mortgage deal elsewhere. If you are paying a high-interest rate, the savings you make by remortgaging may well outweigh any penalties that you pay to your existing lender.
This requires a careful calculation of the savings that you will make against what you are paying to your current lender. Some ‘early repayment charges’ can be significant and so you should consider very carefully whether this will be financially worthwhile to you.