Remortgage break-even
A lower rate saves you money each month, but the product fee has to be earned back first. This finds the month the new deal pays for itself, so you can weigh it against how long you are fixing for.
How break-even works
Switching to a lower rate cuts your monthly payment, but lenders charge a product or arrangement fee for the new deal. The break-even month is simply the fee divided by the monthly saving, rounded up. Pay £999 to save £121 a month and you recover the fee in month 9. Anything after that is pure benefit, up to the point the deal ends.
The catch is the fixed period. If a deal breaks even in month 30 but the fix ends at month 24, you never actually reach the payback, and a fee-free deal at a slightly higher rate might beat it. Always read the break-even month against the length of the fix, not the whole mortgage.
Worked example
On a £200,000 balance with 20 years left, moving from 5.50% to 4.40% drops the payment from £1,376 to £1,255, a saving of £121 a month. The £999 fee is recovered by month 9. Held for the full remaining term, the new deal costs £28,100 less overall after the fee, though in practice you would move to a new fixed deal long before then.
Common questions
What does the break-even month mean?
It is the month at which the money you have saved on lower payments finally covers the product fee you paid to switch. Before that point the fee still outweighs the saving. After it, the new deal is genuinely cheaper. If the break-even month falls after your fixed period ends, the fee may not be worth paying.
Should I add the fee to the loan or pay it up front?
This tool assumes you pay the fee separately. Adding it to the loan spreads it out but you then pay interest on it for the whole term, which usually costs more overall. If the fee is small relative to the saving, paying it up front and clearing the break-even quickly is normally better.
Is a lower rate always worth switching to?
Not always. A rate that is only slightly lower can be wiped out by a large product fee, especially on a smaller balance where the monthly saving is modest. The break-even month is the honest test: a low rate with a big fee can break even too late to matter.
Why compare over the remaining term?
Because the monthly payment depends on how long is left to run. The tool keeps the term the same on both deals so it compares like with like. In reality you usually fix for two to five years, so weigh the break-even month against the length of the new fix, not the full term.