Say you owe £200,000 with 20 years to run and your current deal charges 5.5 percent, costing about £1,376 a month. Switching to a 4.2 percent rate over the same balance and term drops the payment to around £1,233, a monthly saving of roughly £143. A typical £999 arrangement fee is recovered in about 7 months, after which the saving is pure gain. Over a five-year fixed period the saving totals about £8,558 before the fee, or close to £7,559 once the £999 fee is netted off. The smaller your balance, the longer it takes a fixed fee to pay for itself, which is why a fee-free deal at a slightly higher rate sometimes wins.
How it is calculated
The tool prices two mortgages on the same outstanding balance and remaining term, one at your current rate and one at the new rate, using the standard amortising repayment formula. The gap between the two monthly payments is your headline saving. It then projects that saving across the new deal period you enter, usually two or five years, and subtracts the arrangement or product fee to give the net figure that actually matters. The break-even point is simply the fee divided by the monthly saving, the number of months before you are ahead. The calculation does not include any early repayment charge on your current deal, which can be large if you switch before a fix ends, nor does it model rate changes after the new deal period, so always weigh those before committing.
Frequently asked questions
Is a remortgage worth the fee?
Compare the monthly saving against the arrangement fee over the new deal period (often 2 or 5 years). A high fee can wipe out the saving on a small balance. Also factor early repayment charges on your current deal if you switch before it ends.
When should I start looking to remortgage?
Most mortgage advisers suggest starting to shop around three to six months before your current fixed deal expires. Switching too early can trigger an early repayment charge, which is typically 1 to 5 percent of the outstanding balance. Your lender must notify you at least 14 days before your deal ends under FCA rules.
Can I remortgage to a different lender or must I stay with my current one?
You can remortgage to any lender willing to offer you a product. Switching to a new lender is called a full remortgage and usually involves a full affordability assessment plus legal work. Staying with your existing lender is called a product transfer and is simpler, but rates may be less competitive. It is worth comparing both before committing.
Does remortgaging affect my credit score?
Applying for a remortgage with a new lender involves a hard credit search, which shows on your credit file for 12 months and can lower your score slightly in the short term. Multiple applications in quick succession compound this effect, so use comparison tools that offer soft searches to shortlist deals before applying in full. A product transfer with your existing lender typically involves only a soft search or no search at all.