Switching to a new mortgage

THERE ARE NUMEROUS reasons why you might want to remortgage your home and switch to a new mortgage deal. As we start a new year, the continuing prospect of further rising borrowing costs means many anxious homeowners will be eager to secure a new deal before their current one expires. Since the beginning of October 2022, the average five-year fixed mortgage rate touched 6.02%, the highest rate since February 2010. The average two-year fixed rate also crossed the 6% mark to 6.11%. This rate is the highest over the past 14 years[1].

REASONS TO CONSIDER A REMORTGAGE

There are numerous reasons to consider a remortgage. Maybe your current mortgage term is coming to an end. At this point you’ll revert to your existing lender’s Standard Variable Rate (SVR) which you’ll want to avoid as the interest rate is likely to be considerably higher. You may want to increase your borrowing to release equity for a major purchase or expense. You might be moving home and want to borrow more. Or have a home improvement project you need to fund, or want to pay for measures to improve your home’s energy efficiency, pay for school fees or debts you want to consolidate.

MAKING YOUR MORTGAGE MORE AFFORDABLE

You could be looking for a cheaper deal to make your mortgage more affordable every month and want to reduce your monthly repayments. Remember, you don’t have to borrow more to switch to a more competitive mortgage deal. However, you do need to consider that there may be fees involved in exiting your current deal, but it could still be financially worth it. Due to the rising Bank of England base rate, if you’re on a SVR mortgage then you might want to shop around for a more competitive rate. Or if your property has increased in value, in which case you now have a lower Loan to Value (LTV), you might qualify for a lower mortgage rate.

IMPORTANT TO COMPARE YOUR OPTIONS

Whatever your reason for considering a remortgage and switching to a new mortgage deal, it’s important to compare your options and make sure you get the right deal for your personal situation. Essentially, when you remortgage you are switching from one mortgage to another on the home you already own. This might be a new deal with your existing lender, or you might decide to move to a new mortgage with a different lender. The process of remortgaging is very similar to getting a mortgage for the first time. You will need to compare products and rates, and go through the application process.

KNOW EXACTLY HOW MUCH MONEY YOU’LL NEED

However, there are some things that you need to be aware of before you start the process. Make sure you know exactly how much money you’ll need to cover the costs of remortgaging. This includes the fees charged by both your old and new lenders, as well as any associated costs such as valuation or legal fees. It may be possible to remortgage early, even if you’re in the fixed-rate interest period of your current mortgage, but you need to calculate the costs before you do anything. Check that you’re actually eligible to remortgage. Not all borrowers are allowed to switch mortgages, so make sure you meet the requirements of both your old and new lenders. Familiarise yourself with the terms and conditions of your current mortgage, so you know which fees will be applied if you remortgage.

START THE PROCESS OF LOOKING TO REMORTGAGE

You should start the process of looking to remortgage at least three to six months before your current mortgage deal is set to expire. This will give you enough time to research and compare different deals. There are a number of things you should think about before you decide to remortgage your home. Can you afford higher monthly repayments? What if interest rates go up, or if you lose your job? If you’re planning to start or extend a family, your expenses may rise significantly. Compare your existing mortgage with other offers. It’s not all about the initial rate – work out how much interest you’ll pay over the full term too. Also remind yourself of your current mortgage deal. What type of mortgage are you on? What is the current interest rate? How long have you got left to pay? What are your monthly payments?

FIRST SIX MONTHS AFTER BUYING A PROPERTY

Generally, you won’t make sufficient savings in the first six months after buying a property to make remortgaging worthwhile, but there will be exceptions. It can take around two to three months to remortgage, so keep this in mind if you want to time your new deal to start when your fixed-rate period ends. If you remortgage with your current lender it’s considered a ‘product transfer’ and requires no additional legal work. Otherwise, a remortgage will require you to have a solicitor or conveyancer to help with the legal side of things.

PART OF THE COST OF ‘ARRANGING’ THE MORTGAGE

If you are on a fixed rate or discounted mortgage deal, it’s likely that you’ll have to pay an early repayment charge in order to end that arrangement. They are usually calculated as a percentage of the balance still owing on the mortgage. Many lenders charge an exit fee for closing your mortgage account. It may be called something different. Lenders can charge you for a number of things as part of the cost of ‘arranging’ the mortgage and may refer to them as product fees, admin fees or application fees. The majority of legal fees on remortgages are usually covered by the lender themselves. Valuation fees will depend on the value of your property and lenders will have their own fee scale and in many cases the lender will offer a free valuation.

Don’t forget, our professional, friendly advisers are on hand to support you and can help you explore all of your options.

Source data:
[1] Source: https://www.finder.com/uk/ mortgage-statistics 17 October 2022.