Homeowners can usually remortgage before their current mortgage deal ends, but doing so may result in additional charges. The main cost is often an early repayment charge, although arrangement fees, legal fees, valuation costs and administration charges may also apply.

So, what is the penalty for remortgaging early? There is no single standard amount. The cost depends on the terms of your mortgage agreement, your outstanding mortgage balance and how long remains within any tie-in period. Before proceeding, you should compare the total remortgage costs against the potential savings available under a new mortgage deal to determine whether an early remortgage makes financial sense.

In this guide, JMW's residential real estate experts explain the charges you could face if you choose to remortgage early, including early repayment charges and other associated costs. Drawing on our extensive experience in residential property transactions, the guide also explores when remortgaging early could still save you money despite the charges imposed, the factors to consider before making a decision, and what to expect from the legal process.

What Does Remortgaging Early Mean?

Remortgaging involves replacing your existing mortgage with a new mortgage, either with a different lender or, in some cases, through a new product offered by your current lender. Most mortgage products come with a fixed term of two, five or ten years during which the interest rate remains at the relatively low initial rate.

Leaving a fixed rate, discounted or tracker mortgage deal before the agreed period expires is what is meant by remortgaging early. Many people choose to remortgage after the fixed term expires, because most buyers are moved onto their lender’s standard variable rate at this stage, which is usually higher and leads to increased monthly repayments. However, there may also be benefits to remortgaging before the fixed term expires in some cases.

Your mortgage may include a tie-in period during which the lender can charge an early repayment charge if you repay all or part of the loan before the period ends. 

A product transfer with your existing lender is not always treated in the same way as moving to a new lender. However, the terms of your current deal should still be checked carefully before remortgaging early, so you understand any potential fees that may apply.

Do You Get Charged for Remortgaging Early?

You may be charged if your mortgage includes provisions for an early repayment charge (ERC), which is a fee imposed by a lender when a borrower repays all or part of a mortgage during a specified period.

Lenders impose these charges because they agreed to provide the loan on the basis that interest would be paid over a particular period. Ending the mortgage deal early reduces the interest the lender expected to receive.

Not every mortgage has an ERC. The applicable charge, calculation method and expiry date should be set out in your mortgage offer and mortgage agreement.

How Much Is the Early Repayment Charge?

An early repayment charge is commonly calculated as a percentage of the outstanding balance. Depending on the mortgage product, the charge may be between 1% and 5%, although terms vary between lenders.

For example, if the outstanding mortgage debt is £200,000 and the applicable charge is 5%, the early repayment charge would be £10,000.

Some products apply the same percentage throughout the tie-in period. With others, the percentage reduces each year. A five-year fixed rate deal might, for example, begin with a higher charge that falls as the deal ends.

You should ask your current mortgage provider for a redemption statement or written confirmation of the charge before committing to a new deal, if you cannot find this information in your mortgage documents.

When Does an Early Repayment Charge Apply?

An ERC may apply when you:

• Repay your mortgage in full before the current deal ends.
• Move to a new lender during the tie-in period.
• Sell the property and redeem the outstanding mortgage.
• Pay more than the permitted annual overpayment allowance.
• Change to another mortgage product before the initial deal expires.

You may also need to pay an early repayment charge when you are moving house if your mortgage cannot transfer to the new property, although some mortgages can move with you. Porting the mortgage remains subject to the mortgage lender’s current affordability checks, lending criteria and approval of the new property.

What Other Remortgage Costs Could Apply?

The early repayment charge is only one part of the true cost of leaving a mortgage deal early.

Arrangement and booking fees

A new lender may charge an arrangement fee for setting up the new mortgage. These fees are often between £1,000 and £2,000, although some mortgage products have lower fees or no product fee at all.

You may be able to pay the arrangement fee upfront or add it to the new mortgage. Adding the fee to the loan avoids paying the fee upfront, but you will pay interest on it over the mortgage term.

Some lenders also charge a booking fee or application fee. A booking fee may be non-refundable, even if the mortgage application does not complete.

Valuation costs

The new lender will usually require a valuation of the property before agreeing to lend. A valuation fee may range from around £300 to £1,000 depending on the property, the lender and the type of report required. Some mortgage deals include a free basic valuation.

A lender’s valuation is not the same as a structural survey. A structural survey provides more detailed information about the property’s condition and is arranged for the homeowner’s benefit.

Legal fees

Legal work is generally required where you move to a different lender. Legal fees for a straightforward remortgage depend on the property and transaction. At JMW, we offer certain fixed fee services for conveyancing and remortgaging, although additional legal fees may apply where the property is leasehold, ownership is changing or title issues must be resolved.

Your existing lender may charge an administration, mortgage exit or deeds release fee when the current mortgage is redeemed. A deeds release fee can vary, but may be between approximately £50 and £300. This covers administrative work associated with closing the mortgage account and releasing the lender’s charge over the title deeds. Your current lender’s tariff of charges should confirm the applicable amount.

Broker fees

A mortgage broker may charge a broker fee for reviewing the mortgage market and arranging the application. Some brokers are paid by the lender, while others charge the borrower directly or use a combination of both.

The broker fee should be confirmed before you agree to proceed. Seeking advice can be useful when comparing the overall cost of mortgage products rather than focusing only on headline interest rates.

Can Remortgaging Early Save Money?

Paying an ERC does not automatically mean remortgaging is a poor financial decision. A new mortgage deal may offer a lower interest rate, reduced monthly repayments or more flexible terms. Remortgaging may also allow you to release equity for home improvements or other planned expenditure.

However, the lower interest rate must produce enough potential savings to offset all of the possible outgoings, which could include:

• The early repayment charge.
• The arrangement fee.
• The valuation fee.
• Legal fees.
• The broker fee.
• Any booking fee or release fee.
• Interest added to fees included in the new mortgage.

A mortgage broker can help assess whether paying the ERC makes financial sense. This is a significant financial decision, and a better deal on interest alone may not be the cheapest option overall.

How Early Can You Remortgage Without a Penalty?

You can usually avoid paying an ERC by completing the remortgage after the charge period has expired. Many homeowners begin reviewing their options several months before their current deal ends. A new mortgage offer will usually remain valid for three to six months, which should be long enough to arrange completion shortly after the ERC expires.

The exact timing should be coordinated carefully. Completing too early may trigger the charge, while completing too late may mean moving temporarily onto the lender’s standard variable rate.

You may also be able to avoid paying some charges by completing a product transfer with your existing lender, although the available rate should still be compared with the wider market.

What Is the Six-Month Rule for Mortgages?

Many lenders have policies about how long a borrower must own a property before they will consider a remortgage application. Some will not lend until the owner has been registered for at least six months, which is sometimes referred to as the six-month rule.

Other lenders may consider an earlier application, particularly where there is a clear explanation, such as substantial home improvements, a change in financial situation or refinancing after a cash purchase.

The position depends on the new lender’s criteria, the source of funds used for the first mortgage or purchase, and the circumstances of the transaction.

Can You Avoid an Early Repayment Charge?

There are several ways that you can remortgage without paying an ERC, although the best option for your circumstances will depend on your reasons for the remortgage and your lender’s policies. Possible options include:

Waiting until the current deal ends

The simplest option is to wait until the ERC period expires. You can still investigate mortgage products and prepare the application in advance, so provided there is no urgent need to change your financial position, this could be the right approach.

Using your overpayment allowance

Many lenders allow borrowers to repay a limited percentage of the mortgage balance each year without a charge. The permitted amount varies and you will often incur charges if you exceed it, so check the current mortgage terms first. Steadily overpaying your mortgage can reduce the interest you pay and improve your financial position over time.

Porting the mortgage

If you are moving house, your lender may allow you to transfer the mortgage to the new property. Porting may prevent your mortgage provider from imposing an ERC, but the lender will reassess affordability and the property. Additional borrowing could also be placed on a separate mortgage deal with different interest rates and terms.

Negotiating a product transfer

Your current lender may offer a new deal without requiring the existing mortgage to be redeemed. This would reduce the legal and valuation costs associated with moving to a different lender.

What Is the Legal Process for Remortgaging?

Once the new mortgage offer is issued, your solicitor will carry out the legal work required to complete the remortgage.

This process usually includes:

• Checking the property title.
• Reviewing the new lender’s instructions.
• Obtaining a redemption statement from the existing lender.
• Carrying out any required searches.
• Reporting to you and the lender.
• Redeeming the current mortgage.
• Registering the new lender’s charge at HM Land Registry.

The solicitor will also establish that any existing mortgage is discharged and that the title deeds accurately record the new lender’s interest. Your solicitor does not provide regulated mortgage advice or decide whether a particular mortgage product is right for you.