Is remortgaging worth the trouble? How to calculate the profit in remortgaging

Remortagaging is usually very profitable, and can reduce your monthly payments by as much as a third. Many people are not aware of the advantages of remortgaging or regard it as more complicated than it actually is.

The deal breaker in remortgageing is the tie-in clause or worse, the extended tie-in clause. Usually, a tie-in clause would apply early repayment penalties that would make a change of lender unprofitable.

Even if a tie-in clause applies to you should consider remortgageing when it no longer applies. In some cases, if the early repayment penalties are not overwhelming it may still be worthwhile to remortgage.

How to calculate

Your advantage will be a lower interest rate. After choosing the lender you wish to switch to, get a quote of the exact monthly payment you will be charged and a clear account of the initial fees that are dependent on your new lender and make a list of the adjacent costs.

Add up all the possible costs.

See if a tie-in clause is still valid with your present mortgage.

See what you would save in monthly payments over a period of one year.

Spread the initial cost of remortgaging over the remaining number of month on your mortgage.

Add the respective portion of initial cost to the monthly payment that your new lender is offering you. You should do this in order to have an idea of the actual benefit, a benefit that you can only quantify by taking into account the initial remortgaging fees.

Asses whether the difference between your present payments and the payments you would make would justify the initial financial effort.

Final Word

Remember that it might be worthwhile to renegotiate your mortgage agreement with your present lender as he might be willing to give you a better deal than you might be able to get elsewhere. Even if the deal that your current lender is wiling to give you is the same as you would get elsewhere or only slightly disadvantageous consider the initial fees of remortgaging.

In most cases a better mortgage deal is to be found with another lender rather than with your present one since the whole idea behind offering special deals at the beginning of the mortgage is profiting off of reverting you to the standard variable rate after the special offer is over.