Remortgaging with the same lender may seem like the easiest option when it comes to changing your mortgage, but is it always the best choice?
One of the most common questions is whether they should stick with their current lender or look for a new one. While there are pros and cons to both options, In this blog, well explore the potential benefits and drawbacks of remortgaging with the same lender, as well as other options available to you.
Remortgaging is the process of switching your current mortgage to a new lender or negotiating a new deal with your current lender. The main reasons for remortgaging are to save money on your mortgage payments, release equity from your property, or change the terms of your mortgage agreement. Read our article here to learn more on how remortgaging works.
Making the decision to remortgage can be a daunting process, especially if your current mortgage deal has early repayment charges attached. You may be wondering – do I have to pay these charges if I remortgage with my existing lender?
The short answer is – it depends. While some lenders will waive early repayment charges if you remortgage with them, others will still require you to pay. So it’s important to understand how these charges work before making any decisions.
What Are Early Repayment Charges?
Early repayment charges, also known as ERCs or exit fees, are penalties applied by your lender if you repay your mortgage before the end of its term They are designed to protect the lender from losing money if borrowers refinance or switch mortgages while interest rates are low.
ERCs are usually calculated as a percentage of the loan amount repaid. For example, if your outstanding mortgage balance is £100,000 and you have a 5% early repayment charge, you would need to pay £5,000 if you switched lenders right now.
The amount of the ERC normally reduces each year you stay with the same lender. After 2 or 5 years, the charges often drop to zero. But this timeframe can vary significantly between different mortgage deals.
Why Do Early Repayment Charges Exist?
When a lender provides a mortgage, they expect to earn interest payments over the full loan term. But if the borrower remortgages too soon, the lender misses out on future revenue.
ERCs help offset this loss of income. They discourage borrowers from switching too quickly to take advantage of lower interest rates. Without exit fees, lenders would face greater difficulty managing profits.
Essentially, ERCs allow lenders to lock borrowers into their current deal. The charges make it expensive to leave before the end of the term.
Will My Lender Waive Early Repayment Charges If I Remortgage With Them?
Whether or not you pay ERCs when remortgaging depends entirely on the individual lender’s policy. Some lenders will waive the charges if you stick with them, while others will still require you to pay.
Here are some key points on lender policies regarding early repayment charges:
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Lenders want to retain customers. By waiving ERCs, they provide an incentive for borrowers to remain with them when remortgaging. This avoids the effort and costs of acquiring new customers.
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Policies vary by lender. There is no universal rule – each company sets their own guidelines on waiving exit fees. Some are more flexible than others.
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New deal terms can affect charges. Even if a lender normally waives ERCs, they may still apply them if your new mortgage product differs significantly from the old one.
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Your credit history plays a role. Borrowers with excellent payment records are more likely to have ERCs waived compared to those with poor credit.
Overall, remortgaging with your existing lender does not automatically exempt you from early repayment charges. You need to verify their specific policy before making assumptions.
How to Check If Your Lender Will Waive Early Repayment Charges
If you are considering remortgaging with your current lender, here are some tips on checking their ERC policy:
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Review your original mortgage paperwork. This should outline the lender’s policy on early repayment charges when remortgaging with them.
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Ask your mortgage advisor. An advisor who arranged your original mortgage should know if the lender will waive exit fees.
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Contact your lender directly. Speaking to them directly is the best way to get definitive confirmation of their ERC waiver policy.
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Compare new mortgage deals. When comparing remortgage products from your current lender, check if ERCs are included in the fees.
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Get any waiver agreement in writing. Before committing to remortgage, get written confirmation that the lender will waive repayment charges.
Thoroughly researching the lender’s policy in advance can help avoid unexpected ERCs derailing your remortgage plans. Don’t just assume you won’t pay charges without evidence.
Pros and Cons of Waiving Early Repayment Charges
Let’s examine the potential advantages and disadvantages if your lender does agree to waive ERCs when you remortgage:
Pros
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Avoid substantial exit fees. ERCs can equate to thousands of pounds on larger mortgages. Having these charges waived saves you significant money.
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Make remortgaging more affordable. Without expensive early repayment charges to factor in, the overall cost of switching products with your current lender is reduced.
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Take advantage of better interest rates. You can switch to a more competitive mortgage deal with the existing lender without penalty, lowering your ongoing payments.
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Retain benefits of your current lender. By staying put, you keep any perks or customer benefits that attracted you to this lender originally.
Cons
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Miss out on market competition. Sticking with your current lender means you don’t shop around to find potentially better products and rates elsewhere.
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Limited product choice. Your lender may have a narrower selection of mortgage deals compared to what’s available on the broader market.
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Risk of rates increasing later. If you pass up lower market interest rates now, you could pay more if your lender increases their rates in the future after your ERC period ends.
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No leverage to negotiate. Without the threat of switching lenders, you have less bargaining power to negotiate with your existing provider for the best deal.
Overall, not paying early repayment charges makes remortgaging simpler and more affordable in most cases. But weighing up the pros and cons allows you to make the right long-term choice for your situation.
Other Options If Your Lender Won’t Waive ERCs
What can you do if your current lender refuses to waive early repayment charges when you want to remortgage? Here are a few potential options to consider:
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Pay the ERCs. If the savings from a new mortgage deal outweigh the exit fee costs, you may choose to pay the charges and switch lenders anyway.
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Wait until ERC period ends. Remortgaging after your early repayment charges expire allows you to switch lenders penalty-free in the future.
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Ask lender to extend your current deal. They may allow you to remain on your existing deal for longer without requiring repayment charges when the initial term ends.
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Make overpayments. Making extra payments to reduce your mortgage principal can offset some of the ERC costs if you do remortgage.
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Look for partial ERC exemptions. Some lenders may agree to waive a portion of the charges if you meet them halfway.
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Port your mortgage. Porting to a new property with the same lender may avoid exit fees. However, new lending criteria would still apply.
Understanding all your options gives you a backup plan if your lender won’t budge on early repayment charges when remortgaging.
Key Takeaways
- Early repayment charges on mortgages are designed to penalize borrowers for switching lenders too soon.
- Whether or not ERCs apply when remortgaging with the same lender depends on their individual policy.
- Check your original paperwork, speak to your lender, and get any waiver agreement in writing.
- Weighing up the pros and cons helps assess if waiving ERCs makes financial sense long-term.
- If your lender refuses to waive charges, you can pay them, wait them out, or explore alternatives like overpayments.
Knowing the potential pitfalls means you can navigate remortgaging with minimal surprises. Do your homework to determine the most strategic approach for your unique situation.
Drawbacks involved in remortgaging with the same lender
While there may be benefits to remortgaging with the same lender, there are also potential drawbacks that homeowners should consider before making a decision. Some of the most significant drawbacks include:
Benefits of Remortgaging with your existing lender
When it comes to deciding whether to remortgage with your current lender or switch to a new mortgage broker, there are several factors to evaluate.
One of the most significant benefits of remortgaging with your current mortgage lender is the potential for better interest rates. Since you already have an established relationship with your lender, they may offer you a more competitive rate than a new lender would.
Furthermore, if you have a good track record of making timely mortgage payments, your lender may be more willing to negotiate and offer you a more favorable interest rate. They may also consider other factors, such as your credit score and overall financial health, when determining your interest rate.
Additionally, if you have a fixed-rate mortgage with your current lender, they may offer you the option to switch to a new fixed-rate term, which can help you secure a consistent and predictable mortgage payment for the next few years. This can be especially beneficial if youre looking to budget and plan your finances more effectively.
Another benefit of remortgaging with your existing lender is that you may be able to negotiate or waive certain fees. For example, if you have a good payment history and a strong credit score, you may be able to negotiate with your current lender to waive or reduce certain fees, such as arrangement or valuation fees. By sticking with your existing mortgage lender, you could save a lot more money and make the process of remortgaging more affordable, avoiding unnecessary expenses like legal fees.
Switching mortgage lenders can also come with other charges such as exit fees, early repayment fees, and mortgage broker fees. Exit fees are charges that your current lender may impose for leaving your mortgage early, and early repayment fees may be charged by your new lender if you pay off your mortgage before the end of the agreed term.
Mortgage broker fees may also be incurred if you choose to use a mortgage broker to help you find a new mortgage.
Additionally, when you remortgage with your current lender, you may also be able to avoid a credit check or a full affordability assessment, as your lender already has access to your payment history and financial information.
This can be particularly beneficial if your financial circumstances has changed since you first took out your mortgage, and you may not meet the same affordability criteria as you did before.
By staying with your current lender, you can explore these options and take advantage of any additional borrowing opportunities that may be available to you in the future.
On the other hand, a new mortgage provider may require another full property valuation and more legal paperwork which means you would need a solicitor to complete all the legal paperwork needed.
Remortgaging with your existing lender can also provide you with a sense of continuity and stability. If you already have an established positive relationship with your lender, you know what to expect in terms of their customer service and support.
Staying with your current lender, you can maintain this continuity and avoid the uncertainty and potential stress of working with a different lender.
Avoid Paying Early Repayment Charge On Your Remortgage | Mortgage Matters #7
FAQ
What happens when you remortgage with the same lender?
Changing to a new deal with the same mortgage lender means you only get the choice of that bank or building society’s products, so you’re unlikely to be offered the best deal on the market. That’s why it’s always a good idea to shop around to see what’s available from rival lenders.
Do I have to pay the early repayment charge if I remortgage?
If you remortgage while still under the terms of your current mortgage, you might have to pay an early repayment charge. It’s usually a percentage of what you still owe on your mortgage. It can be expensive, so check before you remortgage or wait until your current deal is due to end.
How to avoid paying early repayment fees on a mortgage?
Pay off the mortgage in full before the end of the deal period. Remortgage to a different lender before your fixed or discounted period ends.Apr 9, 2025
Is it better to stay with the same mortgage lender?
Might not get the best rate: Your current lender isn’t guaranteed to offer the best refinance rates. If you don’t shop around, you might miss out on a more competitive rate elsewhere. Fees could be higher: Similarly, your lender might charge steeper closing costs than some of its competitors.