Why it pays to switch mortgages

A mortgage can help you save hundreds of pounds. But there are a lot of factors you should be aware of in order to make sure that you get the best deal.

Why should I refinance my mortgage?

When you first began taking out for your loan, you may have signed up for the best deal. But as time passes, the mortgage market changes and new deals are made more readily available. It is possible that there is a better deal available for you now, which could save you hundreds of pounds.

It is not necessary to change lender.

Be sure to verify for any arrangement or product fees on any mortgages that you’re taking a look at If you’re completing your mortgage deal early, any early repayment charges from your current lender.

These fees can add to the cost of refinancing and may make it more costly than staying on your current loan.

What is the right time to refinance my mortgage?

You can refinance at any time. If you’re not yet nearing the end of your discount or fixed rate term, you might be required to pay an early fee for repayment.

Most people remortgage as they reach the expiration of their fixed discount rate period as this is when your mortgage might become a bargain.

Before making a switch, make sure to look into the costs.

Some lenders may offer fee-free deals to tempt you, but if they don’t there are legal, valuation and administration expenses to cover.

You can use the Annual Percentage Rate Cost (APRC) to help you evaluate deals.

It is a method of calculating interest rates. APRC is a method for calculating interest rates incorporating some mortgage-related fees in the calculation, providing you with the ability to evaluate mortgage deals.

A saving deal may cost you money in the event that you don’t complete your calculations first.

Reducing your loan-to-value to get a better rate

Each remortgage after fixed term agreement is subject to a limit on how much you can borrow when compared with the current price of the house.

This is shown as an amount and is known as the ‘loan to value’.

When you remortgage the less loan-to-value you require, the better options are available to you. This will yield lower mortgage rates.

How to calculate your loan-to-value

Divide your outstanding mortgage amount by the value of your home’s current worth.
Multiply the result by 100.

Example

Your outstanding mortgage balance is PS150,000.
your lender thinks your property is worth PS200,000.
150,000 divided by 200,000 = 0.75
0.75 100 x 0.75 = So your loan-to-value is 75%.

Remember to check for any fees or costs.

Your lender’s valuation

When you apply for a loan, the lender’s valuation might simply be checking the outside of the house on the outside from the street.

If you think the valuation is too low – and you’re missing out on higher rates in the process, you can request that the bank reconsider.

In order to support your claim You could present evidence of the sale price of the similar properties in the area, and where appropriate, include the cost of any home improvement you’ve made.

Remortgaging to obtain a lower rate of interest

If you apply for a new loan generally, you’ll get an introductory deal.

It’s probably a low fixed or discounted rate, or a tracker rate for the first two years or so of the mortgage.

Introductory deals normally last for between two and five years.

When the deal comes to an end and you’re likely to be moved to the loan’s regular variable rate which will usually be higher than other rates you might be able to find elsewhere.

In the event that your trial period expires, take a look at the marketplace to determine if switching to a new mortgage can reduce your costs.

If you’re only left with just a little left to pay off your mortgage, the savings you can get from switching could not be enough to justify the cost.

The flexibility of a mortgage

The process of refinancing can allow you get a flexible rate, such as if you want to overpay.

Or maybe you want to move to an offset mortgage or current account mortgage, where you can use your savings to reduce the amount of interest you pay at any time – or for a short period of time and can also choose to draw them back when you’re in need of them.

Consolidating debt with a mortgage

If you’re in the middle of a large amount of debt, you might be tempted by borrowing additional cash and use it to pay off your other debts.

Although interest rates on mortgages are typically less than personal loans and are less than credit cards, you might end up paying more overall if the mortgage is for a long term.

Instead of adding the loan on top of your loan, you can try to sort and clear your loans separately.

Examine the market for mortgage offers

Remember:

The comparison websites don’t give you the same results, so make sure to use more than one before making a final choice.
It’s equally important to conduct some research into the type of product you want and the features you need before making a purchase or changing suppliers.

Think carefully about remortgaging and locking into a new deal that has high charges for early repayment when you’re thinking about moving home in the near future.

The majority of mortgages are now “portable and portable, meaning they can be moved to a different property. But, moving is still treated as the same as a new mortgage application. Therefore, you will need to meet the lender’s affordability tests as well as other requirements to be considered in order to be eligible for the mortgage.

If you fail the checks, then your only option might be to talk to other lenders which could result in paying the early repayment fee of the lender you currently have.

“Porting” a mortgage may often mean only the existing balance is left on the fixed or discount agreement, meaning you need to choose another deal to borrow any additional money to move. This new deal is unlikely to fit into the timescale of the current deal.

If you’re certain you’re likely to move home within the initial repayment charge period of any loan deal, you might want to look into options with no or low early repayment charges , which gives you more choice to shop around amongst lenders once it is time to move.

Receive advice

Taking advice from a qualified expert offers you extra protection because if the mortgage proves to be not suitable then you may file a claim with the Financial Ombudsman Service (FOS).

If you choose to follow the ‘execution-only’ approach (where you make decisions independently, without consulting) you will face more instances where you have the right to be able to complain FOS.