When it comes to a remortgage there is of course common lingo used by lenders. One of the most confusing lists of common terms is those involved in remortgages that are fees. There are all kinds of terms surrounding fees it seems and these can often be misunderstood. In better understanding your remortgage process it will be helpful to acquaint yourself with the types of fees one may encounter during a remortgage process. Some may be familiar since they also can also be seen with a mortgage and may have been encountered when you first purchased your property. If not, then this is a good time to learn more about the fees that a homeowner just might have to pay or could avoid during the remortgage process.
• Early Repayment Fees: These are fees that are encountered when a homeowner pays off a mortgage before the term of the deal has ended. In determining an interest rate and the amount of money a lender will make on a loan they take into consideration how long the homeowner will be paying on the loan. When the homeowner pays off the mortgage early as they will when they remortgage, then the lender losses out on expected interest income. To help then gain back some of that loss there are usually early repayment fees outlined in a mortgage agreement.
• Mortgage Exit Administrative Fees: Much like the fees that are applied by a lender for early repayment a mortgage exit administrative fee is used to recoup losses by the lender. When a homeowner is released from their mortgage deal early there is a loss in interest income. The mortgage exit administrative fee is meant to help the lender gain back funds that would have been realized had the mortgage deal completed. The level of this fee should be outlined in a mortgage document and a homeowner should pay close attention and make sure the lender has not unfairly charged above the previously agreed amount.
• Arrangement Fees, Booking Fees, or Initial Fees: These terms are interchangeable and are the cost incurred by a lender offering the remortgage. Again these are fees the lender is charging to increase their profitability in loaning you money. In some cases the arrangement fee can be so high that it offsets any savings in a remortgage deal offered at a lower rate than other offers. This is an important fee to watch and consider. In some cases there are remortgages that do not have any arrangement fees which would help hold down costs of borrowing for a homeowner.
• Valuation fees: Valuation fees are to pay for having the property assessed as to whether it is worth the value of the amount being loaned in a remortgage. A lender doesn’t want to loan money beyond the cost of the property. Again, there are remortgages that can be found at times that do not have any cost associated with a valuation.
• Legal fees: Legal fees are charged by a solicitor to handle the legal aspect of filing papers and overseeing the business deal of a remortgage. It is always a good idea to have a solicitor handle a remortgage deal so this is a necessary cost that is considered well spent. Once again, a waiver for this too can be an offer within a remortgage. Free legal work is definitely an added bonus to a remortgage.
• Stamp duty: Stamp duty is a tax paid to the government paid as a percentage of the property purchase price. Just like in other tax situations, the higher the purchase price the higher the tax paid. This cannot be avoided and is not controlled by either your current lender or the remortgage lender. It is a tax to the government and must be paid.
• Brokerage Fee: A brokerage fee is charged when you work with a broker to obtain a remortgage. The fee expected to be paid after a remortgage with a broker should be discussed ahead of time. This will allow the homeowner to realize the cost overall of a remortgage with the broker. Keeping in mind that the broker works for and on behalf of the homeowner to find the best remortgage deal versus working for a lender helps a homeowner to better understand the need for a brokerage fee.
In obtaining a remortgage all of the above fees should be considered along with the interest rate offered. Sometimes taking a slightly higher interest rate offer with a remortgage can offer up substantial savings by avoiding fees that waived with the higher rate.
