Refinance mortgage
If you're a homeowner and you're looking for ways to reduce your monthly household bills, one sure-fire way to succeed is to refinance your mortgage. Moving your mortgage to a different mortgage provider can save you several hundred pounds each year, even if the interest rate on the refinance mortgage deal is only 1% or 2% lower than on your current mortgage. In fact, if you're on a standard variable rates mortgage product with a typical APR of 6.75%, a mortgage of £60,000 or more will yield a minimum saving of £75 per month if you were to refinance with the best fixed rate product currently available…certainly a saving not to be sniffed at!
But, before you jump on the mortgage refinance bandwagon, it pays to do your homework. A refinance mortgage is no freebie, the outgoing mortgage lender and the new mortgage lender with whom you are refinancing likely to charge you fees for the legal transfer of your mortgage and deeds. While these costs can generally be added to the mortgage loan amount, you could find yourself shelling out more than you bargained for!
Refinance mortgage - checklist of costs
Here is a summary of the costs involved when taking out a refinance mortgage: -
Refinance Cost #1 - Redemption Costs
These are the main costs levied by your outgoing mortgage provider for the closure and transfer of your mortgage. They will include fees for administration, transfer of deeds and any early repayment penalty that applies to your mortgage. Early repayment penalties are often attached to discount rate and fixed rate mortgage products, and are there to deter borrowers from refinance before the lender has got a fair share of the borrower's money. If you plan to refinance whilst still in the penalty period you're costs could be quite substantial. To get a good idea of the redemption costs involved ask your current mortgage provider for a redemption statement.
Refinance Cost #2 - Mortgage Arrangement Fee
The mortgage arrangement fee is charged by the new mortgage provider running the refinance deal. It is a fee for arrangement of credit and can be anything from £150 - £700 depending upon mortgage provider and the value of the mortgage.
Refinance Cost #3 - Valuation Fee
Before taking your mortgage on the refinance provider will need a valuation of your property. This will involve a surveyor visiting your home on behalf of the refinance company to value it. The valuation fee may be as much as £250.
Refinance Cost #4 - Legal Fee
Legal fees of £300 - £400 are normal for the conveyancing of your refinance mortgage. This will include fees for local authority searches.
Refinance Cost #5 - Stamp Duty
1% stamp duty will be required if the property is valued at more than £120,000. The ceiling on stamp duty doubled from £60,000 following the March 2005 budget.
One final point worth making is that in an effort to attract refinance customers many mortgage companies will partly or fully cover the refinance costs relating to points #2, #3 & #4 in the checklist. It therefore pays to shop around before you commit to refinancing your mortgage.