No-Fee Remortgage Deals: Are They Worth It?

What Is a No-Fee Remortgage Deal?

A no-fee remortgage deal is a mortgage product that doesn't charge an arrangement fee (also called a product fee or completion fee). This means one less upfront cost when you switch your mortgage, which can make the remortgage process simpler and cheaper at the outset.

Many no-fee deals also come with free valuation and free legal work as part of the package, making them genuinely low-cost to set up. In some cases, the only charge you'll face from your outgoing lender is a small exit fee.

However, the trade-off is usually a slightly higher interest rate compared to equivalent deals that charge a fee. Lenders price their products to ensure profitability, and if they're not collecting a fee, they'll typically recoup that revenue through a higher rate spread across all borrowers on that product.

How to Compare Fee-Free and Fee-Paying Deals

The only reliable way to compare is to calculate the total cost over the initial deal period. This means adding up every monthly payment for the length of the fixed or tracker period, then adding any arrangement fees on top.

For example, consider a £200,000 mortgage on a two-year fix. A fee-free deal at 4.7% would cost roughly £1,135 per month, totalling £27,240 over two years. A deal at 4.5% with a £999 fee would cost about £1,112 per month, totalling £27,687 including the fee. In this example, the fee-free deal is actually cheaper.

The crossover point depends on the mortgage size. Larger mortgages benefit more from lower rates because the monthly saving is amplified by the larger balance. For smaller mortgages, the fee represents a bigger proportion of the overall cost, making fee-free deals more attractive.

When No-Fee Deals Make More Sense

No-fee deals are typically the better choice for smaller mortgages, generally those below £150,000 to £200,000. At these levels, the monthly saving from a lower rate is relatively modest and may not be enough to offset a £999 or £1,499 arrangement fee within the deal period.

They're also a good option if you expect to remortgage again in two years, as you won't be paying repeated arrangement fees each time you switch. Over multiple remortgage cycles, these fees can add up to a significant amount.

If cash flow is a concern, no-fee deals are attractive because there's no large upfront payment or additional debt being added to your mortgage. You simply switch and start paying at the new rate, which can be psychologically simpler as well as financially convenient.

When Fee-Paying Deals Are Better Value

For larger mortgages, typically above £250,000, fee-paying deals with lower rates often work out cheaper overall. The monthly saving from the lower rate is substantial enough to recover the fee and still leave you better off by the end of the deal period.

Fee-paying deals can also be better if you're taking a longer fix, such as five years. The longer the deal period, the more months of savings you accumulate, making it easier to offset the upfront fee and come out ahead.

If you're choosing a fee-paying deal, remember to factor in whether you're paying the fee upfront or adding it to the mortgage. Adding it to the loan increases the total cost due to interest charges, so the break-even calculation changes. A broker can model both scenarios for you to find the cheapest option.