Looking for a remortgage deal? Consider these 5 things first

When you come to the end of the initial fixed interest rate term on your mortgage, you move onto your lender’s standard variable rate (SVR). This is usually more expensive than the best new fixed or tracker deals on the market.

Switching to a new mortgage deal can help you save thousands each year. But before you commit, weighing all the costs and benefits is crucial. In this guide, we’ll explore five key factors to consider so you can make the best financial decision.

Before you even consider finding a new mortgage deal, you must carefully consider what fees you’ll have to pay your existing lender to leave your current deal. It may be that you won't actually save by remortgaging because the fees outweigh any potential savings.

If you are in your mortgage's initial fixed or tracker period, you may need to pay an early repayment charge (ERC). This is generally calculated as a percentage of your outstanding balance and can be hefty. For example, if you're trying to leave a five-year fixed rate in the first year, an ERC of 5% is common.

You probably won't need to pay an ERC if you have finished that initial period and moved on to your lender’s SVR. You may, however, have to pay an exit fee (also called an admin fee). This will set you back anything up to a couple of hundred pounds, though thankfully, not all lenders charge this fee

The first thing most people look at when comparing mortgages is the interest rate. That’s because it has a direct impact on the size of your monthly mortgage repayments – the bigger the rate, the bigger your repayments will be.

That's a great place to start, but you also need to consider your loan-to-value (LTV) and how this will affect the rate you'll actually be able to get. Your LTV is how the loan size you’re looking for compares to the property's overall value. The more of the mortgage you've paid off, the lower your loan-to-value rate will be.

Ideally, when you remortgage, you'll be looking at a smaller LTV than when you first bought the property, thanks to your monthly repayments reducing the size of your loan. If your property has also increased in value, then the LTV will be further reduced. This is important as the lower the LTV, the better the interest rates that will be offered by mortgage lenders.

However, if your LTV has stayed at a similar level, the deals on offer won't give you huge savings. Many lenders have repayment calculators on their websites, which can help you determine how your repayments would change if you remortgage to one of their deals. Alternatively, you could use a calculator like the one on the BBC website.

Want some more information on LVT and how it impacts your mortgage options? Click here.

If you're changing mortgages, there may be some fees to pay. It's worth working out how much you'll have to pay in fees if you switch deals, as it could add up to quite a lot depending on your situation. Here's a couple to watch out for:

Arrangement Fees

Most mortgages now charge an arrangement fee (though lenders like to call this a 'product fee' just to keep you on your toes). These can vary massively in price – while some will be fee-free, others will charge as much as £1,500.

You can pay this fee in one go at the outset, or you can add it to your mortgage balance. Bear in mind though that if you do, you will be charged interest on it, so it'll cost you much more over the long term.

Booking Fees

There may also be a booking or reservation fee – essentially, a charge for reserving the deal while your application is processed. This is much smaller, often around £100, but it's not refundable. So if you don’t end up taking out the mortgage, that money is gone for good. Not all lenders charge this fee, though, so check first.

When you remortgage, your property will need to be valued. A surveyor will be sent out to look around and determine exactly how much your house is worth. Thankfully, most lenders will cover the cost of this valuation for you on a remortgage, though if they don’t, you can expect to pay a few hundred pounds.

Similarly, legal work must be done on a remortgage. Again, most lenders will include this as part of their package, though it could cost up to £300 if they don't.

You’ll need to include these fees when determining the best deal – choosing a product with a higher rate but smaller fees may be cheaper.

Using a mortgage broker when looking for a new deal can be a smart move. Not only do they have access to some products that you can’t get directly, but they’ll also have a better idea of precisely which lenders are most likely to lend to you. Bear in mind that some brokers will charge a fee for their advice, too, so that’s another cost to consider.

But before you go with this option, read our piece on five things you need to know about mortgage brokers.

• Check what fees you’ll need to pay to leave your current deal
• Shop around for a new product
• Don’t ignore the new lender fees – you may be better off with a worse rate but lower fee
• Check whether legal work and valuations are included
• If in doubt, use a mortgage broker (but remember they might charge a fee)