Remortgaging Cost

It is easy to get caught up with all the discounting and special offers being offered by lenders who want your remortgage business. Securing a borrower who already has a mortgage is a lesser risk to the lender than providing loans to people starting out with a new property.

Lenders go to great effort in attracting the remortgage market, and the best way to secure business is to offer interest rates lower than the competition. They also offer to simplify the transfer of the loan, and some will even waiver some of the costs involved in transferring a loan. But it is the lower interest rate that is the biggest carrot dangled in front of the borrower to take up an offer. But borrowers need to consider some of the other costs of transferring a loan. Some of these costs can’t be waivered by the lender. Some of the costs that need to be considered are penalties, establishment fees, valuations and conveyance fees.

Penalty Fees Just as lenders want to get business from established mortgagees, the mortgager of the original loan wants to keep your business. So the lender will often attached penalties to early payout of loans. These penalties are noted in the conditions when the loan is established. This works two ways for the lender, they can recoup some of the lost interest income from early exit of the borrower and it is a deterrent for customers looking to save money by remortgaging with another lender.

Establishment Fees This is the most common charge that is waivered by lenders to secure remortgage customers. This fee is well known by customers and lenders will often advertise ‘$0 Establishment Fees’ or ‘No Establishment Fees’. These fees can also be called loan processing fee or application fee and they can be flexible as it is not a government charge but a commercial fee. Some lenders will only charge the borrower the establishment fee if the borrower exits the loan early, thereby blurring the line between what is a fee and what is a penalty.

Valuations and Conveyance Fees Valuation and conveyance costs might be covered by the lender, but any borrower should get independent advice. A remortgage that is based on optimistic evaluations can cause many problems for the borrower. An independent evaluation might increase the cost but it is worth it, particularly in a declining market like the one many homeowners in the UK are facing right now.

About the Author

Simon Harvey is a financial adviser specializing in the bank industry. He is also a freelance writer. For more information on this subject please contact him. Get more information regarding Remortgaging.

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