Remortgage Calculator

The short answer

• Moving £200,000 from a 7.5% standard variable rate to a 4.5% fix cuts payments by about £346 a month over 20 years.
• Over a 2-year deal, after a £999 fee, that leaves you about £10,900 better off.
• Compare deals over their whole length, including fees, not just the rate.
• Start looking up to 6 months before your current deal ends, so you never pay an early repayment charge or the variable rate.

Why remortgage?

Remortgaging means moving your mortgage to a new deal, either with a new lender or your current one. Most people do it when their fixed rate ends, to avoid the standard variable rate. Others remortgage to borrow more for home improvements, to release equity, to switch from interest-only to repayment, or to take advantage of a lower loan to value now that they have paid off some of the loan or their home has risen in value.

The cost of drifting onto the standard variable rate

The standard variable rate (SVR) is set by each lender and is usually several percentage points above the best fixed rates. Lenders rely on some borrowers not acting. On a £200,000 mortgage with 20 years left, an SVR of 7.5% means payments of £1,611 a month against £1,265 at 4.5%. Even three months on the SVR costs over £1,000.

Worked examples

Over a 5-year deal at the same rates, the gain grows to about £28,160. The calculator includes the lower balance at the end of the deal, because more of each payment goes on capital when the rate is lower.

Fees: upfront or added to the loan

Many of the lowest rates come with arrangement fees of £999 or more; fee-free deals usually have a higher rate. On a large mortgage a low rate with a fee is often cheaper; on a small mortgage the fee can outweigh the rate saving. You can usually add the fee to the loan, but then you pay interest on it for the rest of the term. On £150,000 moving from 7.5% to 3.9% with a £1,499 fee added, the gain over 2 years is about £8,936, compared with £9,676 for a fee-free 4.2% deal. Use the calculator to compare both.

Early repayment charges

Fixed and tracker deals usually charge an early repayment charge (ERC) if you leave or repay in full before the deal ends: often 1% to 5% of the balance, falling each year. On £200,000, a 2% charge is £4,000, which can wipe out the benefit of a slightly lower rate. Most lenders let you overpay up to 10% a year without a charge. The simplest way to avoid ERCs is to time the switch for the day your deal ends.

Product transfer or full remortgage?

Fixed, tracker or variable?

• Fixed: the rate and payment stay the same for the deal. Certainty, but you do not benefit if rates fall.
• Tracker: follows the Bank of England base rate plus a margin. Payments fall if rates fall and rise if they rise.
• Discount or SVR: set by the lender and can change at any time.

Some trackers have no early repayment charge, which gives you the option to fix later.

Two-year or five-year fix?

A two-year fix gives you the chance to switch again sooner, which helps if rates fall or your home’s value rises enough to move you into a lower loan-to-value band. A five-year fix gives longer certainty and fewer arrangement fees. If you might move home, check whether the mortgage is portable, so you can take it with you without an early repayment charge.

Loan to value: why your home's value matters

Lenders price mortgages in bands of loan to value (LTV): the mortgage as a share of the home’s value. Rates usually step down at 90%, 85%, 80%, 75% and 60%. If your balance has fallen or your home has risen in value since you last borrowed, you may now qualify for a cheaper band. A £200,000 mortgage on a £340,000 home is about 59% LTV, which usually gets the best rates.

Borrowing more when you remortgage

You can borrow more when you remortgage, for example for an extension or to consolidate debts. Mortgage rates are often lower than personal loan rates, but spreading a debt over 20 years can cost far more in total interest. Check the overall cost, and whether your lender will ask what the money is for.

When to start

1. 6 months before your deal endsStart comparing

   Many lenders let you secure a rate this far ahead.

2. 3 to 4 months beforeApply

   A full remortgage can take 4 to 8 weeks.

3. Before completionKeep checking rates

   If rates fall, you can often switch to a cheaper deal before it starts.

4. The day your deal endsSwitch

   No early repayment charge and no time on the standard variable rate.

Affordability checks

A new lender checks your income, spending and credit record, and whether you could afford the payments if rates rose. If your income has fallen, a product transfer with your current lender may be easier, as it often needs no new affordability check. See the mortgage affordability calculator.

Using a broker

A mortgage broker can search a wide range of lenders, including deals not offered directly, and handle the application. Many are paid by the lender and charge you nothing; others charge a fee. Ask whether they search the whole market. Your current lender’s product transfer offer is always worth comparing against what the broker finds.

Remortgaging and overpayments

A remortgage is a good moment to think about overpaying. If you have savings earning less than your mortgage rate after tax, using some to reduce the balance before you switch can lower your loan to value and your payments. Most deals let you overpay up to 10% of the balance each year without a charge. Keep an emergency fund first, because money paid into a mortgage is hard to get back. See the mortgage overpayment calculator to see the interest you could save.

Changing the term

When you remortgage you can also change the length of the mortgage. Shortening it raises monthly payments but cuts total interest sharply; extending it lowers payments but adds interest. Lenders usually want the mortgage repaid before you reach a set age, often 70 or 75. If your new payment is much lower than before, consider keeping your payment the same by shortening the term: you will be mortgage-free sooner.

Interest-only mortgages

If you have an interest-only mortgage, your payments only cover interest, so the balance stays the same. At remortgage, lenders will ask how you plan to repay the loan at the end. Switching some or all of it to repayment raises your monthly cost but means the debt shrinks. The calculator assumes a repayment mortgage.

If rates may fall

Nobody knows where interest rates will go. If you think rates may fall, a shorter fix or a tracker with no early repayment charge keeps you flexible. If you value certainty, a longer fix protects you if rates rise. Many borrowers choose based on how much a rise in payments would hurt their budget, rather than trying to predict the market.

A smaller mortgage example

Changing who is on the mortgage

Remortgaging is often when couples add or remove a name from the mortgage, after a marriage, separation or inheritance. Removing someone needs the lender’s agreement that the remaining borrower can afford the loan alone, and may need legal work to transfer ownership of the home. Adding a borrower usually needs a full application. Stamp Duty can apply when a share of a property changes hands for money or debt, so take advice first.

Other costs of remortgaging

Besides the arrangement fee, a remortgage can involve a valuation fee, legal fees for the conveyancing, a broker fee and sometimes a fee for leaving your old lender, often called an exit or deeds release fee of up to a few hundred pounds. Many remortgage deals include a free valuation and free standard legal work, which can be worth several hundred pounds. Add any you will pay under More options in the calculator.

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