Mortgage guide · worked examples in GBP
Remortgage break-even: include fees and the remaining debt
A lower interest rate is only one part of a remortgage comparison. Include switching costs, the period you expect to keep the deal and the balance left at the end.
A simple cash-flow example
Suppose switching costs £2,000 paid upfront and reduces the payment by £100 a month. Dividing £2,000 by £100 gives a 20-month cash-flow break-even. After 12 months the payment reduction totals £1,200, still £800 below the initial cost. After 24 months it totals £2,400, or £400 above it. This constructed example assumes unchanged savings throughout that period.
Where that shortcut fails
A longer term can reduce the monthly payment while repaying less principal. Fees divided by monthly savings ignores that difference in the remaining debt. If there is no positive monthly saving, this shortcut has no finite break-even; that alone does not compare the full economics of the two loans.
Compare at the same future date
For each option, add payments made before your chosen date, the balance needed to clear the loan at that date and any fees paid separately. Compare the two totals. Include applicable exit charges at that date too. This undiscounted comparison accounts for principal repayment but does not value the timing of cash flows or possible investment returns.
Count a fee once
If a £2,000 fee is paid upfront, count it as a separate cash cost. If it is added to the mortgage, include it in the opening loan balance and subsequent interest instead; do not also add it as an upfront payment. Include relevant legal, valuation, arrangement and early repayment charges, using the actual quote rather than a generic fee assumption.
Match the decision to the deal period
Compare the years you expect to keep the product, not only a 25- or 30-year projection at today’s introductory rate. A fixed deal can end earlier than the loan term. Record what rate assumptions you use after it ends and rerun the comparison if the quote changes.