Remortgage Example: How It Works in Real Life

Ever wondered what actually happens when you remortgage? In plain English, it’s swapping your current mortgage for a new one, often to save money or free up cash. This page gives you a step‑by‑step example you can picture, plus the real factors that decide whether the move pays off.

Why Consider a Remortgage?

Most UK homeowners look at remortgaging when interest rates drop, when they need extra cash for home improvements, or when they want to shorten the loan term. A lower rate can shave hundreds of pounds off the monthly payment, while pulling out equity can fund a kitchen remodel without a separate loan. The catch is that a new deal usually comes with arrangement fees, valuation costs, and sometimes early‑repayment penalties on the old loan.

Step‑by‑Step Example

Imagine you bought a house three years ago with a £200,000 mortgage at 3.5% interest, 25‑year term. After three years you’ve paid down £12,000, so the outstanding balance is about £188,000. The market now offers a 2.8% rate for a fresh 22‑year term.

Here’s how the numbers break down:

• New loan amount: £188,000 (you could add £20,000 extra for renovations, making it £208,000).
• Monthly payment at 2.8% for 22 years: roughly £1,080.
• Old payment at 3.5% for the remaining 22 years: about £1,170.
• Monthly saving: £90.
• One‑off costs: arrangement fee £1,000, valuation £150, legal fees £300.

Subtract the £1,450 in fees from the first 12 months of savings (£90 × 12 = £1,080) and you still need about £370 to break even. After roughly four years the saved interest outweighs the fees, and you keep the lower payment for the rest of the term.

That quick math shows why the break‑even point matters. If you plan to move house in two years, the fees might outweigh the benefits, so staying put could be smarter.

Key factors that shift the example include your credit score, how much equity you have, and whether the lender charges an early‑repayment penalty on the original mortgage. A higher credit score can lock in the best rates, while a low score might push the rate up to 3.5% again, erasing any saving.

Common pitfalls people run into are underestimating the total cost of switching and ignoring the impact on their credit file. Each credit check can shave a few points, and lenders often look at the total borrowing level—not just the mortgage—when deciding on the rate. Also, many forget to ask about the “exit fee” on the old loan; that fee can be a few thousand pounds if you’re still within an initial fixed‑rate period.

Bottom line: a remortgage can be a money‑saving tool, but only if the new rate, fees, and your future plans line up. Run the numbers, check the break‑even period, and make sure you’re not paying more in hidden costs.

Want more real‑world cases? Browse our articles on “Remortgage Risks Explained,” “Does Your Credit Score Impact Remortgaging?” and other guides that dive deeper into each topic. Armed with the right example, you’ll know whether a remortgage makes sense for you.