DOING THE MATHS WHEN REMORTGAGING
Before you even think of applying for a remortgage you should do the maths to make sure that you really are going to benefit to the extent that you think. If you are looking to save money then ensure you evaluate the real costs of switching by doing a detailed calculation.
How Do I Work Out How Much I Can Save?
You can calculate your monthly saving by subtracting the new monthly payment from your existing monthly payment. If you make any insurance payments to your lender each month you must exclude them from the above calculation.
This monthly saving will tell you how much extra money you will have in your pocket each month.
However this is not the whole story, as you must take into account the cost of remortgaging, which are fees you must pay for various services provided by different parties to enable the mortgage change to take place.
In order to correctly calculate the real saving from changing your mortgage you need to determine your remortgage costs and subtract them from the accumulated saving provided by your lower monthly payments.
Your accumulated saving is an addition of all your monthly savings from your first payment at the start of your new mortgage to the very last payment right at the end of your new mortgage.
Typically your remortgage costs can include many fees and charges such as some or all of:
- Mortgage Redemption Penalty
- Property Valuation Fee
- Lenders Arrangement Fee
- Local Authority Search Fee
- Land Registry Fees
- Solicitors Legal Fees
- Mortgage Indemnity Premium
- Mortgage Brokers Fees
Add together the costs of all of those in the list above, which apply to you, to calculate your remortgage costs.
Your accumulated saving is calculated by multiplying your monthly saving by 12 to determine your annual saving each year, and then multiplying this annual saving by the length in years of the new mortgage.
Subtract your remortgage costs from your accumulated savings value to give you the real saving of switching your mortgage.
If the real saving is a negative number then switching is going to cost you more money over the term of the mortgage than you are going to save.
However if your objective is to get cash out of the deal you may be prepared to pay the extra each month as borrowing using a mortgage is cheaper than using other types of loan.
Some lenders may help you by paying some of the fees for you or offer a cash back facility which will help you pay them off yourself. These sort of deals will often appeal to someone with a smaller mortgage where the savings to be made on a lower interest rate will have less of an impact.
If you want to know how soon you your monthly saving will pay you back for your remortgage costs, just divide your remortgage costs by your monthly saving. This will give you a value that represents the number of months it will take. For example if your monthly saving is 50 and your remortgage costs are 500 then it will take 10 months (i.e. 500 / 50 = 10).
If you have any problems working out any of these figures for yourself then give us a call and one of our brokers will work out your switching costs for you.
