Remortgage comparison lesson
Remortgage Comparison Calculator Tutorial
Learn how UK remortgage comparisons work, including LTV, product fees, early repayment charges, break-even points, and estimated remortgage savings.
Estimated time: 18 minutes
Learning objectives
- Explain how loan-to-value can affect remortgage rate options.
- Include product fees, legal costs, valuation costs, broker fees, and early repayment charges in a switching comparison.
- Calculate a simple break-even point for a remortgage deal.
- Understand how estimated remortgage savings are built from monthly payment differences and switching costs.
- Use the Remortgage Comparison Calculator alongside the Mortgage Comparison Tool without treating either result as advice.
Educational estimates, not advice
This tutorial explains the maths behind a remortgage comparison. It is not a recommendation to switch, stay, borrow more, or choose any product. Check current lender figures, mortgage offer documents, and regulated advice before making a financial decision.
Lesson 01
What a remortgage comparison solves
A remortgage comparison asks whether moving from your current mortgage to a new deal could save money after fees, ERCs, and timing are included.
A lower new rate can reduce the monthly payment, but the switch may still cost money upfront. Product fees, legal costs, broker fees, valuation fees, and early repayment charges can delay or remove the saving.
The useful question is not just whether the new monthly payment is lower. It is whether the new deal could be cheaper over the period you expect to keep it, and whether the break-even point happens soon enough to matter.
Lesson 02
Loan-to-value and remortgage eligibility
Loan-to-value estimates how much of the property value is still mortgaged. It can affect which remortgage rates are available.
LTV is calculated from the current mortgage balance and an estimated property value. A homeowner owing £180,000 on a £240,000 home is at 75% LTV.
UK lenders often group products into LTV bands such as 60%, 75%, 80%, 85%, or 90%. Exact bands vary by lender. A lower LTV does not guarantee approval, but it can explain why a slightly lower balance or higher valuation may change the rates shown.
LTV = mortgage balance / property value x 100A £180,000 mortgage on a £240,000 property gives a 75% LTV estimate.
Loan-to-value
Loan-to-value, or LTV, compares the mortgage balance with the estimated property value. Lower LTV can put a borrower into a different remortgage rate band.
Product fee
A lender fee for a mortgage product. It can be paid upfront or added to the mortgage, where it may increase the balance and interest charged.
Early repayment charge
An ERC is a charge that may apply if you leave a current mortgage deal early or repay more than the lender's allowance.
Break-even point
The month when cumulative estimated savings from the new deal have covered the upfront switching costs.
Worked example
Estimating remortgage LTV
Set the property value and mortgage balance
Assume the home is worth £300,000 and the current mortgage balance is £210,000.
Divide balance by value
The mortgage balance is 70% of the property value.
£210,000 / £300,000 = 0.70Convert to a percentage
Multiply by 100 to express the result as loan-to-value. This borrower has an estimated 70% LTV.
0.70 x 100 = 70%
Final result
The estimated LTV is 70%. If a lender's rate band changes at 75%, this could be materially different from a 76% LTV estimate.
Lesson 03
Product fees and ERCs
A remortgage comparison should include the costs of switching, not just the new interest rate.
Product fees may be paid upfront or added to the mortgage. Upfront fees affect cash today. Fees added to the mortgage can increase the balance and may attract interest.
Early repayment charges matter when switching before the current deal ends. An ERC can outweigh several months of payment savings, so use the figure quoted by the existing lender rather than guessing.
Switching costs = product fees + ERCs + legal fees + valuation fees + broker fees - cashbackOnly include costs and cashback that actually apply to the remortgage being compared.
Worked example
Product fee added to the mortgage
Compare fee payment choices
A £220,000 remortgage has a £1,499 product fee. If paid upfront, the mortgage balance remains £220,000. If added to the loan, the financed balance starts at £221,499.
£220,000 + £1,499 = £221,499Understand the trade-off
Adding the fee can reduce upfront cash needed, but the borrower may pay interest on that fee while it remains on the mortgage.
Make the comparison fair
If one deal adds a fee and another does not, compare monthly payment, total paid, and remaining balance. The lower payment alone can hide the extra debt.
Final result
A fee added to the loan can make upfront cash flow easier, but it is not free. The comparison should show the higher starting balance.
Lesson 04
How remortgage savings are calculated
The simple saving estimate compares monthly payment reduction with switching costs over the period you expect to keep the new deal.
Break-even calculations show when cumulative payment savings are estimated to recover the cost of switching.
The first step is the monthly payment difference. If the current payment is higher than the new payment, the difference is a monthly saving before costs.
The second step is switching cost. The break-even point estimates how many months of monthly savings are needed to recover those costs. A positive net saving after the comparison period means the simplified cash-flow estimate is ahead, but the remaining balance and later rates may still matter.
Monthly saving = current monthly payment - new monthly paymentA positive number means the new deal is estimated to reduce the monthly payment before considering fees and charges.
Switching costs = product fees + ERCs + legal fees + valuation fees + broker fees - cashbackOnly include costs and cashback that actually apply to the remortgage being compared.
Break-even months = switching costs / monthly savingThis simple version is a teaching shortcut for steady monthly savings. The calculator models break-even month by month from cumulative current-deal and new-deal costs.
Net saving over comparison period = monthly saving x months compared - switching costsThis is a simplified cash-flow view. A fuller comparison should also check the remaining balance and any fee added to the loan.
Estimated saving = current total cost - new deal total costA positive result means the new deal is cheaper over the modelled period after the included costs and assumptions.
Estimate the current mortgage position
Start with the current balance, payment, rate, remaining term, and any early repayment charge that would apply if you switched now.
Calculate LTV
Divide the current mortgage balance by the estimated property value. This helps explain which remortgage rate bands may be available.
Loan-to-value LTV = mortgage balance / property value x 100A £180,000 mortgage on a £240,000 property gives a 75% LTV estimate.
Estimate the new deal payment
Use the new interest rate, term, and any fee added to the loan to estimate the new monthly repayment.
Add all switching costs
Include product fees, broker fees, legal fees, valuation fees, early repayment charges, and cashback. If a product fee is added to the loan, also remember it may increase interest.
Switching costs Switching costs = product fees + ERCs + legal fees + valuation fees + broker fees - cashbackOnly include costs and cashback that actually apply to the remortgage being compared.
Compare cash flow over the chosen period
Multiply the monthly saving by the number of months you expect to keep the deal, then subtract switching costs.
Estimated net saving Net saving over comparison period = monthly saving x months compared - switching costsThis is a simplified cash-flow view. A fuller comparison should also check the remaining balance and any fee added to the loan.
Check break-even
For a quick manual estimate, divide the switching costs by the monthly saving. In the calculator, break-even is checked month by month by comparing cumulative cost of staying put with cumulative cost of the new deal.
Simple break-even point Break-even months = switching costs / monthly savingThis simple version is a teaching shortcut for steady monthly savings. The calculator models break-even month by month from cumulative current-deal and new-deal costs.
Lesson 05
Worked remortgage examples
These examples show how fees and ERCs can change the answer even when the new monthly payment is lower.
Worked example
A lower payment with a 14-month break-even point
Compare the monthly payments
The current mortgage costs £1,260 per month. The new deal is estimated at £1,080 per month.
£1,260 - £1,080 = £180/month savingAdd the switching costs
The new deal has a £999 product fee, £300 legal cost, £200 valuation cost, and a £1,000 ERC. There is no cashback.
£999 + £300 + £200 + £1,000 = £2,499Calculate break-even
Divide the switching costs by the monthly saving. The remortgage needs about 14 months to recover the costs.
£2,499 / £180 = 13.88 monthsEstimate the two-year net saving
Over 24 months, the payment saving is £4,320. After £2,499 of switching costs, the simplified net saving is about £1,821.
£180 x 24 - £2,499 = £1,821
Final result
The new deal saves about £180 per month, but the £2,499 switching cost means the simplified break-even point is around 14 months.
Lesson 06
Calculator walkthrough
Use the remortgage calculator to compare your current mortgage against one possible new deal, then use the mortgage comparison tool to compare new deals with each other.
- Open the Remortgage Comparison Calculator and enter your current balance, remaining term, current rate, and current monthly payment if the tool asks for it.
- Enter an estimated property value so the tool can show the LTV. Treat the value as an estimate unless you have a recent lender valuation.
- Add the new mortgage rate, new term, and product fee. Choose whether any fee is paid upfront or added to the mortgage where the calculator supports that assumption.
- Enter switching costs such as legal, valuation, broker, and arrangement fees. Add any early repayment charge quoted by your current lender.
- Compare the monthly payment change, total switching costs, break-even month, and estimated net saving over the period you expect to keep the new deal.
- Use the Mortgage Comparison Tool when you want to compare two possible new mortgage products side by side, rather than just current mortgage versus one new deal.
Lesson 07
Common Mistakes
Most mistakes come from leaving out a cost, comparing the wrong period, or treating an estimate as if it were a lender quote.
- Comparing only the headline rate and ignoring product fees, legal fees, valuation fees, broker fees, cashback, and ERCs.
- Forgetting that a product fee added to the mortgage can increase the balance and may attract interest.
- Using an optimistic property value, which can make the LTV look lower than a lender valuation might show.
- Treating the break-even month as a guarantee. It is an estimate based on the inputs, payment timing, lender rules, and how long the borrower keeps the deal.
- Comparing a two-year deal with a five-year deal as if the risk and time period were identical.
- Ignoring what happens after the fixed period, especially if the follow-on rate assumption is much higher.
Practice question
Exam Style Question
A homeowner's current payment is £1,320 per month. A new remortgage deal is estimated at £1,145 per month. Switching costs are £995 product fee, £400 legal and valuation costs, and a £900 early repayment charge. Estimate the monthly saving, total switching cost, simple break-even point, and simplified net saving after 24 months.
Subtract the payments, add the switching costs, divide cost by monthly saving, then calculate 24 months of savings less costs.
Break-even months = switching costs / monthly savingThis simple version is a teaching shortcut for steady monthly savings. The calculator models break-even month by month from cumulative current-deal and new-deal costs.
Full solutionShowHide
The monthly saving is £175, switching costs are £2,295, break-even is about 13.1 months, and simplified 24-month net saving is £1,905 before checking remaining balance or later rates.
Calculate monthly saving
Subtract the new estimated payment from the current payment.
£1,320 - £1,145 = £175Add switching costs
Include product fees, legal and valuation costs, and ERCs.
£995 + £400 + £900 = £2,295Find the simple break-even point
Divide total switching costs by the monthly saving.
£2,295 / £175 = 13.1 monthsEstimate net saving over 24 months
Multiply the monthly saving by 24 months, then subtract switching costs.
£175 x 24 - £2,295 = £1,905State the limitation
This cash-flow shortcut does not prove the new deal is best. A fuller comparison should also check remaining balance, fee interest, incentives, follow-on rates, and whether the homeowner keeps the deal long enough.
Practice questions
Worked solutions
Try each remortgage maths question first, then open the collapsed solution to check the steps.
Practice question
Calculate LTV
A homeowner owes £168,000 and estimates the property is worth £240,000. What is the loan-to-value, and why might it matter when remortgaging?
Divide the mortgage balance by the property value, then convert the decimal into a percentage.
Worked solutionShowHide
The estimated LTV is 70%. LTV can matter because lenders often price remortgage products in rate bands.
Divide balance by value
Compare the debt with the property value.
£168,000 / £240,000 = 0.70Convert to percentage
Multiply by 100.
0.70 x 100 = 70%Interpret it
A 70% LTV estimate may qualify for different rates from an 80% or 90% LTV estimate, depending on lender criteria.
Practice question
Find the break-even month
A new deal is estimated to save £95 per month. The product fee, legal fee, valuation fee, and ERC total £1,710 after cashback. What is the simple break-even point?
Divide the total switching costs by the estimated monthly saving.
Worked solutionShowHide
The simple break-even point is 18 months. If the borrower expects to keep the deal for less than that, the switching costs may outweigh the payment saving.
Use the break-even formula
Break-even months are estimated by dividing switching costs by monthly saving.
£1,710 / £95 = 18 monthsRead the result
The new deal has to run for about 18 months before the cumulative monthly saving covers the upfront costs.
Check the real-world caveat
This is a simple estimate. A fuller comparison should also consider fee interest, remaining balance, and whether the payment changes later.
Practice question
Estimate net saving over two years
A remortgage saves £140 per month and has total switching costs of £2,200. What is the simplified net saving after 24 months?
Multiply the monthly saving by 24 months, then subtract the switching costs.
Worked solutionShowHide
The simplified net saving is £1,160 over 24 months before considering any difference in remaining balance or later rate changes.
Calculate gross payment saving
Multiply the monthly saving by the comparison period.
£140 x 24 = £3,360Subtract switching costs
Remove the fees and charges paid to switch.
£3,360 - £2,200 = £1,160Interpret carefully
This says the cash-flow estimate is positive. It does not prove the deal is best, because balance, lender rules, and future rates still matter.