Remortgage Break-even

Remortgaging: how to know when the numbers actually work

Remortgaging — moving your mortgage to a new deal, either with your existing lender (a product transfer) or a new one — can save significant money over time. But between early repayment charges, arrangement fees, legal costs and the hassle involved, the decision is rarely as simple as "the new rate is lower." The break-even calculation tells you how long it takes before the savings outweigh the costs.

What drives the break-even point

The break-even point is straightforward: take your total upfront costs (ERC + arrangement fee + legal costs) and divide by your monthly saving. If you save £200/month and costs are £3,000, you break even in 15 months. Everything after that is pure saving. The question is whether you'll stay on that mortgage for long enough to pass the break-even point before your fixed rate ends and you remortgage again.

Early repayment charges: the big wildcard

Early repayment charges (ERCs) are the most unpredictable cost in a remortgage. On a typical 2-year fixed rate, the ERC might be 2% of the outstanding balance in year one and 1% in year two. On a £300,000 mortgage, that's up to £6,000 in year one. On 5-year fixes, ERCs can be structured as 5%, 4%, 3%, 2%, 1% over the fixed period. Always check the exact figure on your current mortgage offer document — not your statement or memory. The ERC drops significantly as you approach the end of your fixed term, which is why most borrowers time a remortgage to coincide with the end of their deal.

The product transfer alternative

A product transfer — staying with your current lender but switching to a new rate — avoids the ERC and often has no legal or valuation fees. It's quicker and simpler. The trade-off: you're limited to what your current lender offers, which may not be the best available rate. It's worth getting a broker to compare the best market rate against your lender's product transfer options. Sometimes the whole-of-market rate is meaningfully better; sometimes the product transfer wins on simplicity once fees are factored in.

When to start looking

Most mortgage products allow you to lock in a new rate up to 6 months before your current deal expires — and the new rate only activates when your current deal ends. This means you can start shopping around when you're 6 months from the end of your fixed term with no ERC exposure. Starting early avoids the risk of falling onto the lender's Standard Variable Rate (SVR) — typically 1–3% higher than fixed deals — even for a single month.

Arrangement fees: add to loan or pay upfront?

Most product arrangement fees can be either paid upfront (typically £999–£1,999) or added to the mortgage loan. Adding it to the loan means you pay interest on it at your new mortgage rate over the remaining term. On a 25-year term at 4.5%, a £999 fee added to the loan costs around £1,500 in total interest — so the effective cost is £1,500 not £999. For shorter terms or if you're overpaying the mortgage anyway, the difference is smaller. For longer terms at higher rates, paying upfront wins.

The net saving perspective

The monthly saving is easy to see. The total saving over a full term can be substantial — but requires the new deal to actually be held for that long. Most borrowers remortgage every 2–5 years as their fixed term expires, so the relevant question is usually "does this break even within my fixed-rate period?" If the answer is yes, and the deal is materially better, it's usually worth doing. If the break-even is beyond your fixed term, a product transfer with no fees is likely the smarter move.